Situation: Father or employer comes to bank and says, "Joe is coming to you to apply for a car loan. I realize his credit is lousy, but if you will make the loan and help him rebuild his credit, I will sign a guarantee. HOWEVER, I don't want Joe to know that I've signed this guarantee. He might get lazy and not repay promptly".
Question: Would this represent a violation of the privacy act?

I don't know how privacy rules will impact this situation, but we had an almost identical situation. Joe got the loan, Joe's relative/employer signed a guaranty, and then Joe got behind on payments. The lender that made the loan had since left the bank and the lender that inherited the file was left with a messy situation.

When the loan got to be 60 days past due, the lender contacted the guarantor. Joe got angry because he thought he had qualified for the loan on his own. Joe's response was to file bankruptcy (our loan was unsecured) and accuse the bank of misrepresentation.

Aside from the privacy issue, I'd stay away from a blind guaranty.

I remember when I first heard about this type of arrangement about 18 years ago. The Deputy Bank Commissioner was talking about it. At that time, it was not all that unusual, and was a fairly accepted practice.

Now, however, we're in a different environment because of all the emphasis on privacy. That means l) potential regulatory violations because there are now specific do's and don'ts; and 2) greater likelihood of customer suits relating to privacy.

If you allow the transaction you describe, you are implicitly, or perhaps even explicitly, revealing/confirming that the son has made a loan application to you. I would think that you would also be revealing the amount of the loan, since the father's guarantee would probably reflect the amount he is guaranteeing. Both of those bits of information would be NPI and it would take some creative work to fit the disclosure under one of the exceptions. I'm not saying it's impossible -- I can imagine arguing everything from it being necessary to effect a transaction initiated by the son, since you wouldn't make the loan without this arrangement, to a variety of similar arguments.

You simply have to look at what your risk is. What's the risk an examiner would find this to be a privacy violation? Could you convince the examiner an exception applies? What's the risk the customer might sue?

Our Co-signer notice form (to comply with Reg AA & Calif state law) is signed by both the primary obligor and the co-signer or guarantor. So in our case, it would be impossible to have a blind guaranty.