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Financial Institution Letters Guidance On Regulation B Spousal Signature Requirements
This guidance provides information on the rules governing spousal signatures as they relate to extensions of credit, including business credit.1 (For reference, see the attached chart depicting the regulatory requirements concerning spousal signatures.)
NOTE: Some states' property laws treat married applicants differently from unmarried applicants in a way that affects their creditworthiness. For example, several states provide that real property and/or personal property acquired by married persons jointly is owned as tenants by the entirety (i.e., where neither spouse would be able to commit any interest in the property without the signature of the other spouse on the promissory note), unless specified otherwise. In such states, if state law so provides, a creditor could require the signature of the non-applicant spouse on the promissory note where the creditor relies upon real property and/or personal property owned by the applicant and the applicant's spouse as tenants by the entirety in order to qualify the applicant for the loan.
(ii) the applicant does not have sufficient separate property to qualify for the amount of credit requested without regard to community property.10,11
NOTE: Section 202.5(c)(2)(iv) permits a creditor to request any information concerning an applicant's spouse (or former spouse) that the creditor could request about the applicant under certain circumstances, including when the applicant requests unsecured credit affected by community property laws. Regulation B requires that when an applicant relies on his or her individual interest in property owned jointly with the applicant's spouse to satisfy the creditor's standards of creditworthiness, the creditor may not require the spouse's signature on any instrument as a condition of the approval of the credit extension, unless the applicant's interest in the property does not support the amount and the terms of the credit requested or one of the three exceptions set forth in Section III above applies.15 The creditor must determine (and not presume) the actual form of ownership of the property prior to or at consummation of the credit transaction.16 The possibility of subsequent changes in the form of ownership (e.g., by transfer or divorce) may not be considered.17 The creditor is permitted in its evaluation of assets to determine whether the applicant's interests in the assets being offered are of sufficient value to protect the creditor in the event of death or default in the following way:
The same analysis is true regarding extensions of credit for a business as set forth in Section V below.
V. Significance in Business Lending.
A person's intent to be a joint applicant must be evidenced at the time of application. Although the mere presence of two signatures on a promissory note may not be used to show an intent to apply for joint credit, signatures or initials on a written application that affirm the applicants' intent to apply for joint credit, as opposed to merely affirming the veracity of data may be used to establish an intent to apply for joint credit.22 Where there is no written application, the applicants' intent to apply for joint credit may be evidenced, for example, by the presence in the file of a written statement by the applicants that expresses such an intent. Even if a corporation is creditworthy, a creditor may require the personal guarantees of the partners, directors or officers of a business, and the shareholders of a closely held corporation.23 In accordance with Regulation B, a creditor is prohibited from requiring the signature of the guarantor's spouse in the same way that it is prohibited from obtaining the signature of an applicant's spouse and the Official Commentary to Regulation B states that the signature rules of § 202.7(d) apply equally to guarantors.24 Thus, if a creditor first determines that the guarantor is not creditworthy based upon his or her individual assets, then, in accordance with the signature rules of § 202.7(d), the creditor may require an additional signature and that signature may be required to be the guarantor's spouse's in appropriate circumstances (i.e., in accordance with § 202.7(d)(2) (unsecured credit), § 202.7(d)(3) (unsecured credit involving community property) or § 202.7(d)(4) (secured credit)).25 In any event, while a creditor may require officers of a business to personally guarantee the business loan, and may require the guarantee of another person in appropriate circumstances, the creditor may not automatically require that spouses of married officers also personally guarantee the loan.26 As previously indicated, the rules set forth in Section IV above, regarding what property a creditor may prefer, also apply to business credit. Regulation B does not require a creditor to limit its evaluation of the guarantor's creditworthiness to individually owned assets in the business lending context if (1) the guarantor's interest in individually owned assets is insufficient to protect the creditor or (2) if the joint owner's signature is necessary for the creditor to reach the property being relied upon or offered as security by the guarantor such as with tenants by the entirety. In such instances, the creditor may require the signature of the non-applicant joint owner, including a spouse, but only on the document necessary, or reasonably believed necessary by the creditor, to provide adequate protections to satisfy the debt in the event of the applicant's death or default. Attachment: Chart of Spousal Signature Requirements 1This guidance augments that provided by FDIC FIL-9-2002, "Spousal Signature Provisions of Regulation B," dated February 4, 2002.2The Official Staff Interpretations make it clear that, with the exception for closely held corporations, it is impermissible for a creditor to require any applicant who is individually creditworthy to provide a cosigner, even if the creditor applies the requirement without regard to any prohibited basis. Official Staff Interpretations, 12 C.F.R. pt. 202, Supp. I, Paragraph 202.7(d)(1), Comment 1, as amended by 68 Fed. Reg. 13,144, 13,191 (2003). All references in this guidance to Regulation B and its accompanying staff commentary take into account the Federal Reserve Board's amendments to those documents, made effective as of April 15, 2003, and with a mandatory compliance date of April 15, 2004. 3Although this guidance strictly relates to the requirements for "spousal" signatures, the requirements also apply to obtaining the signatures of other persons in addition to the applicant. 412 C.F.R. § 202.7(d)(5) and Official Staff Interpretations at Paragraph 202.7(d), Comment 2. ECOA and Regulation B do not prohibit spouses from signing voluntarily. A creditor should leave it up to the applicant to name the additional party. 5Official Staff Interpretations at Paragraph 202.7(d)(2), Comment 1(ii). 612 C.F.R. § 202.6(c). 7Regulation B requires reasonable belief to be supported by a thorough review of pertinent statutory law and decisional law or an opinion of the state attorney general. Official Staff Interpretations at Paragraph 202.7(d)(2), Comment 2. 8If instead of jointly owned property, the applicant is relying on the spouse's income, the creditor may require the spouse's signature to make the income available to pay the debt. Official Staff Interpretations at Paragraph 202.7(d)(5), Comment 2. 9Regulation B requires reasonable belief to be supported by a thorough review of pertinent statutory law and decisional law or an opinion of the state attorney general. Official Staff Interpretations at Paragraph 202.7(d)(2), Comment 2. 10Most community property laws specify how married couples own and control property and who has the legal power to commit the property to support a credit application or secure a loan. A creditor may assume an applicant who applies for credit in a community property state is a resident of that state, unless the applicant indicates otherwise. Official Staff Interpretations at Paragraph 202.7(d)(3), Comment 1. 11If the applicant is relying on the spouse's income (including future earnings), the creditor may require the spouse's signature to make the income available to pay the debt. Official Staff Interpretations at Paragraph 202.7(d)(5), Comment 2. 12Regulation B requires reasonable belief to be supported by a thorough review of pertinent statutory law and decisional law or an opinion of the state attorney general. Official Staff Interpretations at Paragraph 202.7(d)(4), Comment 2. 13Regarding integrated notes and security agreements, see Official Staff Interpretations at Paragraph 202.7(d)(4), Comment 3. 14See Official Staff Interpretations at Paragraph 202.7(d)(4), Comments 1 and 2. 15See generally, Official Staff Interpretations at Paragraph 202.7(d)(2), Comment 1. 16This would require considering not only applicable law, but also any documents evidencing and/or affecting the form of ownership (e.g., a trust instrument). 17Official Staff Interpretations at Paragraph 202.7(d)(2), Comment 1(i). 18 Official Staff Interpretations at Paragraph 202.7(d)(1), Comment 1, as amended by 68 Fed. Reg. 13,144, 13,191 (2003). An exception to this prohibition is made for guarantors of closely held corporations. See Section V of this Guidance. 19 Regulation B requires reasonable belief to be supported by a thorough review of pertinent statutory law and decisional law or an opinion of the state attorney general. Official Staff Interpretations at Paragraph 202.7(d)(4), Comment 2. 20Under Regulation B, written applications are only required for credit for the purchase or refinancing of a dwelling as a principal residence. 12 C.F.R. §§ 202.5(e) (recodified as 12 C.F.R. § 202.4 (c) by 68 Fed. Reg. 13,144 (2003)), and 202.13(a). Issues raised in this section of the guidance also may occur in the consumer credit context. 2168 Fed. Reg. 13,144, 13,165 (2003) (to be codified at 12 C.F.R. § 202.7(d)(1)). 2268 Fed. Reg. 13,144, 13,165 (2003) (to be codified at 12 C.F.R. § 202.7(d)(1)). 23Official Staff Interpretations at Paragraph 202.7(d)(1), Comment 3, as amended by 68 Fed. Reg. 13,144, 13,191 (2003). Model Application Form 1-4, contained in the Appendix to Regulation B, provides for applicants to check an option and initial the application form so as to indicate whether joint credit is sought. See id. at 13,172. Official Staff Interpretations at Paragraph 202.7(d)(6), Comment 1. 24Official Staff Interpretations at Paragraph 202.7(d)(6), Comment 2. 25Id. The guarantor is treated as an "applicant" for such purposes. 12 C.F.R. § 202.2(e).
26Official Staff Interpretations at Paragraph 202.7(d)(6), Comment 2.
2. The requirement for the guarantee must be based on the guarantor's relationship with the business. A creditor must evaluate the financial circumstances of the partners, etc. before determining if the joint property owner's signature would be required. 3. Follow the chart regarding individual unsecured or secured credit. 4. For example, an instrument to create a valid lien, pass clear title, waive inchoate rights or assign earnings. A creditor may require both property owners to sign the credit and security agreements, if required under state law. |
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Last Updated 1/13/2004 | communications@fdic.gov |