We effectively deny a cosigner on a loan - either informing them or not informing them - but we keep the denied cosigner on the loan and make them jointly liable in the event the borrower does not pay. Any issues with this practice?

Isn't a co-signer supposed to be able to pay off the loan if the borrower can't? If the borrower needs a co-signer yet you deny this particular co-signer, what do you base the loan approval on? Am I misreading this somehow?

I don't understand how you could deny someone credit but still make them liable for the debt? Did the co-signor sign the note? If so, then I would think that trumps the denial?

Are you saying you are denying them as a co-signer but requiring them to be a co-borrower? A co-signer is as primarily liable for the debt as the "borrower" is. That's the purpose of the notice to co-signer is to notify them of their obligation and that the bank can collect from them without first trying to collect from the borrower.

BTW, I hope you are still providing the notice to co-signer because under Reg. AA that is what they are regardless what you are calling them.

We are denying them as a coborrower - but still keeping them attached to the loan in the event the borrower does not pay.

Maybe I'm crazy but this still sounds like trying to get blood out of a turnip.

If you're denying them as a coborrower based on their credit, how would they pay if the borrower couldn't? They need to relinquish their rights in the event of foreclosure but I wouldn't keep them on as a co-anything.

Is this your standard practice for all applicants? Do you treat all applicants, married or unmarried, the same in similar circumstances? Denying them as a co-borrower but still requiring them to become legally obligated on the loan could also be construed as a deceptive act and practice. Sounds to me like this is a foreclosure waiting to happen, with a potential law suit on behalf of the "co-borrower".




If you are denying them based on their credit report then hopefully you are furnishing them the required FCRA notice.

Also, if you're not informing them then are you really "effectively" denying them?

Hmmm... UDAP is a concern. With respect to FCRA - aren't we only obligated to provide only the one of the coborrowers with the resquisite FCRA notice. I am also concerned about FACT - as we are reporting to credit bureau - the 'powers that be' do not see this as a problem - not sure how I can frame it as a problem. Is Reg AA implicated as well?

Thanks

The ECOA AAN is only required for the primary applicant, however the FCRA AAN is required for all consumers whose credit report played a negative part in denying the credit.

You would have to furnish them the negative reporting information disclosure if you will report them to the CRAs, in addition the NHLA if secured by residential 1-4 real property.

You need to look at the definition of a co-signer at 227.12:

(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. The term does not include a spouse whose signature is required on a credit obligation to perfect a security interest pursuant to state law.
(3) A person who meets the definition in this paragraph is a cosigner, whether or not the person is designated as such on the credit obligation.

The co-signer rule does not apply to the purchase of real property.

Can we start this thread over? I am really confused on how you can deny someone and still make them be liable on a debt????? Maybe I'm just dense, but I really don't understand the scenario on this one. Can you start at the application stage and walk us through this??