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#89756 - 06/19/03 04:47 PM Questioning my Understanding
Anonymous
Unregistered

For a consumer loan, is the bank required to provide a privacy disclosure to a guarantor? My thoughts are no, based on 216.4(c)(3)(i) the guarantor is not the person establishing the customer relationship, therefore disclosure is not required. Am I correct or am I interpreting it wrong?


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General Discussion
#89757 - 06/19/03 05:22 PM Re: Questioning my Understanding
Tina A Sweet Offline
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Tina A Sweet
Joined: Aug 2001
Posts: 1,033
Marysville, Ca.
Here is the requirements under Reg P. Although the co-signer does not have the relationship, do you not have all the information on that person also. I would say to be on the safe side you should provide Privacy disclosure. When in doubt, disclose.( as quoted by Andy)



(b) When initial notice to a consumer is not required. You are not required to provide an initial notice to a consumer under paragraph (a) of this section if:
(1) You do not disclose any nonpublic personal information about the consumer to any nonaffiliated third party, other than as authorized by §§ 216.14 and 216.15; and
(2) You do not have a customer relationship with the consumer.

(c) When you establish a customer relationship–(1) General rule. You establish a customer relationship when you and the consumer enter into a continuing relationship.

(3) (i) Examples of establishing customer relationship. You establish a customer relationship when the consumer:
(A) Opens a credit card account with you;
(B) Executes the contract to open a deposit account with you, obtains credit from you, or purchases insurance from you;
(C) Agrees to obtain financial, economic, or investment advisory services from you for a fee; or
(D) Becomes your client for the purpose of your providing credit counseling or tax preparation services.

(ii) Examples of loan rule. You establish a customer relationship with a consumer who obtains a loan for personal, family, or household purposes when you:
(A) Originate the loan to the consumer and retain the servicing rights; or
(B) Purchase the servicing rights to the consumer’s loan.

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Tina A Sweet-Williams
AVP Special Assets
mailto:tsweet@goldcountrynb.com

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#89758 - 06/19/03 05:55 PM Re: Questioning my Understanding
Anonymous
Unregistered

Not required. Be careful about the difference between a co-signer and a guarantor though. I would definitely give one to a true co-signer, but not a guarantor.

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#89759 - 06/19/03 06:07 PM Re: Questioning my Understanding
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 83,224
Galveston, TX
Anon - I'm curious - can you define the differences between a co-signor and guarantor in a consumer transaction?
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#89760 - 06/19/03 07:24 PM Re: Questioning my Understanding
Anonymous
Unregistered

Tina, I agree with you when you say: When in doubt, disclose.( as quoted by Andy) Our problem is, Laser Pro does not produce the Privacy Disclosure for guarantors, which made me question if we needed to provide it.

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#89761 - 06/19/03 07:56 PM Re: Questioning my Understanding
RebekahL CRCM Offline
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RebekahL CRCM
Joined: Feb 2003
Posts: 874
Big Sky Country
Quote:

Our problem is, Laser Pro does not produce the Privacy Disclosure for guarantors, which made me question if we needed to provide it.




Anon, are you certain that the consumer (disclosable) side is being selected at the beginning of the loan origination? If you are selecting the commercial application side (non-disclosable), it won't give you a privacy policy to save your life. Another possibility: you may need to check how your standard loans are set up in Laser Pro. When the parameters of your product were established (by whomever is your in-house administrator), privacy notices for guarantors may not have been activated. (I'm not sure if that is even possible, but it may be something to double-check.)

My bank uses Laser Pro also, and I just went down to see what the loan typist could produce. By selecting a loan on the consumer loan policy side, she was able to get a privacy statement for the guarantor with no problem.

If all else fails, you may need to put in a call to Harland.

Good luck!
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Me, Type A? Maybe - I'm not done analyzing it yet.

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#89762 - 06/19/03 09:22 PM Re: Questioning my Understanding
RebekahL CRCM Offline
Platinum Poster
RebekahL CRCM
Joined: Feb 2003
Posts: 874
Big Sky Country
One other thought...

When obtaining a guarantee on a consumer loan, make sure the guarantee contains a "Notice to Cosigner". See Reg AA here, and this BOL article for more information.

I don't want to lead you off-track from the privacy notice issue, but I also don't want you to miss this important notice either! All the more reason to make sure your guarantee docs are coming from the consumer side of Laser Pro, not the commercial side - otherwise they won't have the cosigner notice.

Rebekah
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Me, Type A? Maybe - I'm not done analyzing it yet.

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#89763 - 06/20/03 01:08 AM Re: Questioning my Understanding
Anonymous
Unregistered

Thanks for your suggestions. I will look into the Laser Pro and Notice to Cosigner issues. I have one question regarding the Notice to Cosigner for the guarantor. Are you producing your loan doc from the consumer side when you have a commercial loan with a guarantor? Your response is appreciated as we have only been using Laser Pro for a short time.

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#89764 - 06/20/03 11:30 AM Re: Questioning my Understanding
Cowboys Fan Offline
Power Poster
Joined: Dec 2002
Posts: 4,615
SC
Use the consumer side whenever the purpose truly is consumer (regardless of collateral, cosigners, guarantors, etc.). This will ensure that you are getting all of the disclosures that you need.

Cosigners Notices aren't required on Commercial loans, even when you have an individual acting as a guarantor.
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#89765 - 06/20/03 12:27 PM Re: Questioning my Understanding
Anonymous
Unregistered

Off the top of my head, I'll give it a shot.

A co-signer signs a note and is therefore a co-borrower and personally liable for the debt and all interest in the exact same way as the borrower is.

A guarantor signs a guaranty, not the note, which says he will pay the bank if the borrower fails to. He's sort of a backup plan.

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#89766 - 06/20/03 04:07 PM Re: Questioning my Understanding
RebekahL CRCM Offline
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RebekahL CRCM
Joined: Feb 2003
Posts: 874
Big Sky Country
Good summary, Cowboy Fan!

Be careful about lumping co-signers and co-borrowers together - there is an important distinction. Co-BORROWERS are considered to receive a benefit from the loan. Co-SIGNERS are the "insurance policy", if you will, and do not receive any benefit from the loan proceeds. Depending on your perspective, they are either the good Samaritan of the deal, or the sucker. That is why the cosigner notice is so important - to make sure the person takes note that they are putting their keister on the line, even though they are not getting anything in return for it. Again, this only applies to consumer loans, not commercial ones. (Typically, commercial loans utilize guarantors, and the guarantee agreement is nothing more than one long diatribe disclosing how they are putting themselves on the line. Also, guarantees can be limited or unlimited - co-signership doesn't make that distinction, it is just for the loan signed.)

The following are excerpts from the definition section of Regulation AA (12CFR227.12): (b)(1) Cosigner means a natural person who assumes liability for the obligation of a consumer without receiving goods, services, or money in return for the obligation, or, in the case of an open-end credit obligation, without receiving the contractual right to obtain extensions of credit under the account. (2) Cosigner includes any person whose signature is requested as a condition to granting credit to a consumer, or as a condition for forbearance on collection of a consumer's obligation that is in default..."

So you see, co-signers are more like guarantors than co-borrowers. Clear as mud?
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Me, Type A? Maybe - I'm not done analyzing it yet.

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#89767 - 06/20/03 05:46 PM Re: Questioning my Understanding
Anonymous
Unregistered

My understanding of contract law is that if consideration is not received by both parties, the contract is not valid. This means they have to get something in order for their agreement to pay. That is why hypothecation agreements and guaranty documents usually begin with "for good and valuable consideration, the sufficiency of which is hereby acknowledged..."

How do you document a co-signer as opposed to a co-borrower? I say if someone signs the note as borrower, they are a co-borrower. If you don't want them to be a co-borrower, then have them guaranty the loan.

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#89768 - 06/20/03 07:33 PM Re: Questioning my Understanding
RebekahL CRCM Offline
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RebekahL CRCM
Joined: Feb 2003
Posts: 874
Big Sky Country
I agree that consideration must occur, and that most guarantees do begin with "for good and valuable consideration...". Laser Pro does offer a slightly different version on their consumer guarantees for consumer purposes, though: "I am making this guaranty of payment so that Lender will loan money to Borrower or agree to other requests of Borrower. I agree that Lender's willingness to make the loan to Borrower is enough consideration for my giving of this Guaranty." Obviously, monetary consideration does not have to occur.

True, a co-borrower often has a greater liability to a note, UNLESS the guarantee language waives the defense of the guarantor - that is, the Lender can pursue collection from the guarantor right away, without waiting for the Borrower to make good on the debt. We choose to use language that allows us to place primary liability on the guarantor. Also, on Laser Pro, the language documents co-signers differently than co-borrowers. They are identified separately at the top of the document, the Promise to Pay states "I and all cosigners signing this Note", and their signature lines indicate their position.

So, when it comes right down to it, my bank chooses to have the distinctions of co-borrower, co-signer, and guarantor be very slight, with it all hinging on our discretionary choice. Of course for a co-borrower, the timing of their liability is always immediate - they have to pay, right away, by virtue of being a co-borrower. But for co-signers or guarantors, we can choose to wait to pursue collection.

I guess it really comes down to how each bank's documents define the terms and order of liability. All I know is that if Ihad to be financially responsible for a loan, the consideration I'd need to receive would be a lot more than a "gee, thanks"!!!
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Me, Type A? Maybe - I'm not done analyzing it yet.

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#89769 - 06/20/03 09:36 PM Re: Questioning my Understanding
Elwood P. Dowd Offline
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Elwood P. Dowd
Joined: Aug 2001
Posts: 21,939
Next to Harvey
Anon,
Each of the regulatory agencies adopted its own regulation implementing the GLBA privacy provisions. Of those, only the one promulgated by the NCUA (credit unions) indicates that a guarantor is a "customer" for the purpose of making the disclosures.

Obviously, the other agencies could not find any "service" which was being provided to a gurarantor that would make him or her meet the definition of a "customer."
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