Reg B & Joint Signatures

Question: Since the Regulation B signature rule regarding joint applications was issued, I (as bank compliance officer) have instructed all lending personnel to obtain signatures on credit applications in the joint credit section. If the debtors sign the application at the end, is this sufficient to acknowledge joint credit OR is it required by the Regulation to sign or initial where the joint credit section is on the app or on a separate form acknowledging joint credit? Please advise since I have a loan officer that is in total denial of this requirement.

Answer: Regulation B now requires proof of the intent to apply jointly. The Reg and Commentary together state that both signatures on the note is not sufficient proof - in fact, it may be proof of a violation instead. Where the required standard actually lies is not clear. Both signatures on an application is certainly some indication of intent - unless that application was signed at settlement in which case it may simply prove the violation. The Federal Reserve has left it to individual creditors to establish procedures for compliance with the signature rule. As a result, the procedures that each creditor chooses should be risk-based, taking into account lending products and lending practices in its market. Your procedure, initialing the joint credit request, is a strong risk-management procedure leaving no question about the applicants' intent. If there have been any questions of signature violations in your institution or in your market by another creditor, the careful approach is best.

That being said, there is another issue in your question: that of lender disobedience. When a reasonable compliance policy or procedure is established and that policy or procedure is consistent with the institution's business style and goals, no-one involved in following the policy should be allowed to change or challenge it. The fact that your lender is challenging a procedure that has been put into place to protect the bank is a sign that the lender is a problem.

Not only may this lender violate Regulation B, this lender may also ignore other policies and procedures. When it comes to following the institution's policies and procedures, all policies and procedures are equal. Compliance is just as important as safety and soundness. In fact, compliance is a key part of safety and soundness. So tell this lender to pick up his crayons and color within the lines!

Copyright © 2005 Compliance Action. Originally appeared in Compliance Action, Vol. 10, No. 9, 8/05