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Recent Reg B Changes Require Loan Co-Signers' Proof of Intent

WASHINGTON-The Federal Reserve Board recently issued a final rule on Regulation B, implementing the Equal Credit Opportunity Act, requiring credit unions and other lenders to obtain evidence of a co-signers' intent to sign on a loan at the time of application. Because this could impose a burden on credit unions...

By Staff Writer | Updated on March 09, 2004

WASHINGTON-The Federal Reserve Board recently issued a final rule on Regulation B, implementing the Equal Credit Opportunity Act, requiring credit unions and other lenders to obtain evidence of a co-signers’ intent to sign on a loan at the time of application. Because this could impose a burden on credit unions and clarification was needed on “the time of application,” NAFCU Director of Regulatory Affairs Gwen Baker, CUNA Assistant General Counsel Jeff Bloch, and Fed Consumer Advisory Council Member Ken Bordelon, CEO of E Federal Credit Union paid a visit to Fed staff. The signatures on a promissory note are no longer enough to prove intent to co-sign a loan, Baker explained. She said that the Fed felt this was inadequate evidence and that additional proof was necessary as there has been some abuse of cosigners with lenders somehow forcing them to sign on. What the Fed has proposed is that a check box be added to the application for the cosigner to demonstrate their intent or the cosigner could send an e-mail, or a notation could be made by the institution. The Fed has modified the forms included in the appendix to the rule. However, Baker said, “These new safeguards may not solve the problem.” She added that there are still practical concerns to iron out with telephone or Internet applications. Still the Fed told the credit union representatives that the concern outweighs the operational burden. Fed staff did clarify that “at the time of application is a process and they’re really looking to see that the credit union has obtained evidence at some point prior to the closing of the loan.” The compliance date for the rule is April 15.

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