Apart from regulatory ire and penalties, does anyone know or have experience with the exposure you have to the cosigner for failing to give a cosigner notice? Is it a complete defense or do they have to somehow prove that it actually deceived them? Or, even worse, are there instances anyone knows of punitive type damages? Thanks.

The federal Credit Practices Rule only provides for administrative enforcement but you need to look to your state law to see if an unfair or deceptive practice is grounds for avoidance of the contract. If your state's law would provide that type remedy and you then collected from the cosigner (knowing you should not collect) the cosigner might assert later, in an action to recover what you collected, various intentional torts that could open the door to punitive damages. Much would depend on how egregious your bank's conduct was. I would be very cautious before trying to collect from a cosigner who was not properly notified.

Cosigners and guarantors are never happy to repay someone else's debt, even though they are legally obligated. If they can get out of paying, they usually will. The failure to provide the Notice to Cosigner is a valid defense of the cosigner or guarantor. It happened at a previous bank, and the guarantor did not have to pay. The bank lost.

Many years ago, the FDIC identified several loans that did not have the proper co-signer notice. We agreed to release the co-signers from liability and the FDIC agreed not to cite us. Unless you have a large exposure, I would recommend this type of approach and point it out during the next regulatory examination as proof that your compliance program is working! Loan Officer training might be your next follow-up move.