Compliance Article
01/08/2008
|
Judging from the questions we receive here at ComplianceHeadquarters™, creditors continue to be confused about the “joint application” statement, which appears on most credit applications and looks like this:
Notice—Joint Credit. We intend to apply for joint credit.
X________________________________________(initials)
This article will discuss when the borrowers should sign or initial this notice. But first it’s helpful to put everything in context by looking at the origins of the rule that requires the notice.
Origin of the Rule
Regulation B prohibits a creditor from requiring additional signatures on credit documents if the applicant qualifies for the credit without the signatures. For example, if John Doe applies for credit by himself and qualifies on his own, the creditor is prohibited from requiring his brother Don Doe to sign as a guarantor. The rule goes on to say, however, that if two or more people apply together for joint credit, the creditor is free to require the signatures of all the joint applicants. If John and Don Doe apply for joint credit, the creditor is allowed to require both their signatures, even if either one would qualify on his own.
In August of 1999, the Federal Reserve Board expressed its belief that creditors were relying on the joint application exception to require additional signatures in circumstances where there was no application for joint credit. The Board cited the example of an applicant who submits a joint financial statement along with a credit application. The Board believed that some creditors were treating the submission of the joint financial statement as an application for joint credit and requiring the signature of the non-applicant joint owner of the business.
The Board proposed a change to the Commentary to Regulation B that limited the joint application exception to situations where there is evidence at the time of application of the persons’ intent to apply for joint credit. In March of 2003, the Board finalized the proposal to say that such intent could be evidenced by “signatures or initials on a credit application affirming applicants’ intent to apply for joint credit..." That’s why the notice reads as it does. Take another look at it.
When to Have the Applicants Sign or Initial the Notice
Whether an applicant should sign or initial the statement depends on what the applicant says elsewhere on the application about whether the credit will be individual or joint.
If the applicant is applying for individual credit, the applicant should not sign or initial the statement. This is true even if you expect that a cosigner will be necessary for the applicant to qualify for the loan. Remember that the evidence of intent to apply for joint credit must exist at the time of application. So if there’s only one person applying for the credit, that person should not sign or initial the statement.
If the application indicates that it is for joint credit, then all the applicants should sign or initial the statement. Information about all the applicants should be included in the application or an appendix to it.
What about an application for individual credit when all the parties expect that a guarantor will be required because the applicant clearly does not qualify on his or her own? Since the application is for individual credit, not joint credit, the applicant should not sign or initial the statement.
How to Remember the Rule
Again, the statement should be signed or initialed only when there is more than one applicant and they are applying for joint credit. So look for more than one name on the application and look to see whether the “joint credit” box is checked.
