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Thursday, August 25, 2016

Joint Applicants

QUESTION:
We are a direct lender and have three questions that are somewhat related. Firstly, we know that application signatures by spouses and others are not permitted to be used for extending credit in certain circumstances, yet our training material is not clear about the rule. What is the rule? Secondly, if an applicant uses joint financial information, can we assume the application is for joint credit? And thirdly, exactly who is a joint applicant?

ANSWER:
Except as provided in Regulation B, a creditor may not require the signature of an applicant’s spouse or another person, other than a joint applicant, on any credit instrument if the applicant qualifies under the creditor’s standard of creditworthiness for the amount and terms of the credit requested. [12 CFR § 202.7(d)(1)]

The basic intent of the signature rule is to ensure that a qualified applicant is able to obtain credit in his or her own name. Therefore, a creditor may not require an applicant who is creditworthy to provide a cosigner, even if the creditor applies the requirement without regard to sex, marital status, or any other prohibited basis. 
[12 CFR Supplement I to Part 202 – Official Staff Interpretations § 202.7(d)-1]

With respect to an applicant submitting joint financial information in order to obtain an extension of credit, a creditor may not deem the submission of a joint financial statement or other evidence of jointly held assets as an application for joint credit. [12 CFR § 202.7(d)(1)]

Finally, a joint applicant is someone who applies contemporaneously with the applicant for shared or joint credit. It does not refer to someone whose signature is required by the creditor as a condition for granting the credit requested. 
[12 CFR Supplement I to Part 202 – Official Staff Interpretations § 202.7(d)-2]

Jonathan Foxx
President & Managing Director
Lenders Compliance Group