I know there is a difference between a co-signer and a co-applicant but is it OK if we require everyone to be a co-applicant when applying for a loan. Even if the customer doesn't derive any benefit from the item purchased can we make them be a co-applicant instead of a co-signer? Thanks for your help.

You could as long as you made no exceptions, but they would still meet the definition of a co-signer under Reg. AA and the Notice to Co-signer would be required on all the loans.

From 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.

Dan's right. Cosigners are not something you control. They are by definition, not by the way you title them. Be sure to read Dan's citation of 227.12 (specifically, #3) very carefully. When I was an examiner, and now as a consultant I often hear, "we don't make co-signer loans." That's not true! You can't control it.

Diff Anon - This is confusing me in that it had been explained to me a long time ago that there is a "difference" between a co-signer and co-applicant. (please don't laugh.....) The main difference would be a co-signer gets no benefit from the proceeds where the co-applicant may (example: father "co-signs" a loan for his son/daughter to buy a car. The car is for the benefit of the son/daughter). They are both obligated on the note. How does this fit into the "intent to apply jointly" under Reg B or does it? If the parties intend to apply jointly do you not now have an applicant/co-applicant? The cosigner requirement still applies? I'm feeling really stupid right now in not recognizing this connection and believing this all this time ...... I need a vacation

To Diff Anon: I learned the same thing. But- for the Reg B joint intent issue- good luck proving the difference to an examiner- we are getting both co-signers and co-applicants to sign our "Intent to Apply" form.

If I come in with my son and we both have completed the application but I tell you my intent is to co-sign the loan - am I applying for joint credit? My son is applying for individual credit with me as a co-signer.

Because you have 2 signatures on a loan document does not automatically make it a joint loan request. That is why the intent of the applicants must be established at the time of application.

If you apply for credit and I require a co-signer or co-borrower then I don't need the joint intent. There was no joint intent - the co-signer/borrower was a underwriting condition of the loan request.

First Anon - ok so in the example with your son, then since you are a co-signer, the notice to cosigner is provided. But where you are "joint applicants" are you saying the co-signer notice is still required? I think that's where I'm confused?

No, if we are truly applying as joint applicants/borrowers then the notice to co-signer is not required.

The easiest way for me to explain it is - Any person that did not apply as a co-borrower/joint applicant that is required as a condition of the loan to sign the loan documents is a co-signer under Reg. AA and must receive the notice of co-signer disclosure. If anyone else has a better explanation, or disagrees with mine, please chime in.

The misuse of loan officers requiring co-signers/borrowers when there was no legitimate reason for them is one of the main reasons of the new joint intent requirement under Reg. B and the intent of the applicants are to be documented at the time of application. Not the next day when you decide you need a co-borrower and require the applicant to have someone else complete the application with them.

The joint intent requirement is not that difficult IMO. It is simply documenting are the applicants applying for joint credit or individual credit at the time of application. It is simply one additional question/documentation the loan officer should be asking/doing in their applicant interview.

New anon - so it seems in the joint intent environment today, it is less about establishing benefit, and more about establishing and documenting intent? If I followed the examples, you could indicate joint intent, and still not derive benefit - but not need the co-signer notice since you had indicated joint intent? Is that the new math?

We do very few face to face loan applications anymore. They are faxed, mailed in, taken over the Internet or over the phone. Makes it hard to establish the "other" applicant's intent at the time the application is submitted.

They are faxed, mailed in,

Someone should be contacting them to establish the intent.

taken over the Internet

You should have a field for them to complete stipulating if they are applying for individual or joint credit. This field should be a required field to be completed before they are allowed to proceed. If your software will not allow this, see the first answer.

or over the phone

The interviewer should simply ask the applicant their intent and document it.

There is nothing that requires the applicant to sign a separate form (or any form for that matter), you only have to establish procedures to document the intent.

it is less about establishing benefit,

I didn't say that. If you apply for joint credit to buy a car, or go on vacation we will require the car to be titled in both names and the vacation check will be paid jointly to all borrowers. If we later in the processing stage learn that you only want the car in one name, or the vacation check payable in one name then we will provide the other a co-signer notice.

Drowning, why would the father have been a coapplicant on the son's car loan in the first place?

They applied jointly because the father knew the son had no credit history (18 year old heading off to college) and would not qualify on his own. Our examiner wanted to see a co-signer notice signed on this file because the title was solely in the son's name & the car would be located in the college town so dad was not benefiting from the loan proceeds.

I have the following concerns re: Notice to Co-signer:

1. The 1003 has a statement at the top that states that the applicant is either a borrower or co-borrower. It is my understanding that this is the application used for co-signers as well. Couldn't this create a legal issue in that the bank is calling the applicant a co-borrower and then a co-signer (in the Notice). I believe this has ramifications for collection order purposes (jointly and severally liable per the note).

2. Would it make the most sense to provide the Notice to Co-signer to all co-borrowers but add a statement(s) stating that you may or may not be a co-signer and here is the definition? It would be difficult for us to make the distinction.

b) Disclosure requirement. (1) A clear and conspicuous disclosure statement shall be given in writing to the cosigner prior to becoming obligated. The disclosure statement shall be substantially similar to the following statement and shall either be a separate document or included in the documents evidencing the consumer credit obligation.

If the co-signer designation is a concern simply change the title to Notice to Co-Obligors.

"If you apply for credit and I require a co-signer or co-borrower then I don't need the joint intent. There was no joint intent - the co-signer/borrower was a underwriting condition of the loan request."
I don't disagree with this comment, but should you not document with an adverse action notice that the bank was requiring the co-signer as a condition of the loan. How else would you document that the co-signer was required as a condition of the loan.

They're called credit memos.

1. You better re-read the Reg. You are to establish intent at the time of application - If I tell you my intent is to co-sign/guarantee the loan - then my intent is not to apply for joint credit.

2. I can require a co-signer, co-borrower or guarantor at anytime to qualify the loan. I just can't designate who that will be. And my post never said anything about designating a specific person.

I do understand that the intent needs to be established at the time of application.

Let me give you another situation. My son applies for credit in his own name. The bank denies him based on information from the credit report and a denial is sent with a counter offer that you would consider the application with a co-signer.

The applicant comes in two days later with the co-signer. Do you not have an amended application and need the intent?

IMO this was established to keep banks from requiring individuals to sign when they don't want to. How else do you document that a co-signer is willing to be jointly obligated to the loan?

Yes....credit memos. I cannot seem to stress enough the importance of documenting a credit file concerning many, many things. A person, or examiner or auditor, needs to be able to sit down with a file and capture a clear and complete picture about the entire application process, the decision, the collateral, the purpose, etc, etc, etc, etc. I do not know why so many loan officers fail at this!

We missed the Co-Signer Disclosure...
Can we mitigate risk by having the co-signer sign after close?

Can we mitigate risk by having the co-signer sign after close?

What are you going to do if they say, "Gosh, if you have given me this disclosure before I would never have signed the loan documents."

Train, let sleeping dogs lie and hope you don't have to go to court to collect from the co-signer if they have a good lawyer.