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Requiring Family Member to Sign on Loan

Question: 
Can a lender require a family member to sign on a loan?
Answer: 

Answer by Kathleen Blanchard: No. A bank can require a co-signer or guarantor but cannot specify who that person will be, only that they be credit worthy. Refer to Regulation B, 202.7 and the commentary.

Answer: 

Answer by Randy Carey: Kathleen,

Why could the lender not restrict a co-signer to a relative as long as they did not require it to be the spouse as that would not discriminate on the basis of sex, marital status, or any other prohibited basis??

Paragraph 7(d)(5)
1. Qualifications of additional parties. In establishing guidelines for eligibility of guarantors, cosigners, or similar additional parties, a creditor may restrict the applicant’s choice of additional parties but may not discriminate on the basis of sex, marital status, or any other prohibited basis. For example, the creditor could require that the additional party live in the creditor’s market area.

I know many banks that have done this for 30 years and I have never seen it to be a problem.

Answer: 

Answer by Kathleen Blanchard: As long as they stay away from a spousal requirement it can be okay. I have seen banks (even very recently) reject everyone until the spouse is suggested, so I tend to recommend a creditworthy co-signer, who often is a relative.

Answer: 

Answer by Richard Insley: Reading the question literally, the answer is "no." The requirement is imposed upon the applicant, not someone unrelated to the transaction. At this stage of the application, no one else is a party to the transaction.

Clearly, the lender may limit the universe of creditworthy co-makers or guarantors, but that's one step toward marital status discrimination. Always thinking about the effects test, I'd want to sample enough loans to determine that the applicants' spouses don't end up as the "family member" in a disproportionately high percentage of loans where this requirement is imposed.

First published on BankersOnline.com 7/4/11

First published on 07/04/2011

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