Compliance Advisor

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Headline: Help!  Co-Borrowers, Co-Makers, Co-Signers, Guarantors – What’s The Difference?

Question: I am looking for some guidance on what documentation is required if there is a co-Signer or Co-Applicant.  Is there a difference?  I recall there being a notice to Co-Signer required somewhere.  Can you have a “Co-Applicant” on the loan that is not obligated for the indebtedness?

Answer: Much depends on your specific loan contract and language. Terms are often defined more specifically in your loan agreements.

The term ‘Co-Signer’ is a regulatory term pertaining to Regulation AA and is limited to only consumer loans.


Section 227.14 Unfair or deceptive practices involving cosigners

Prohibits a bank from misrepresenting the nature and extent of a cosigner's liability. Also prohibits a bank from obligating a cosigner unless the cosigner has been informed of the nature of the cosigner's liability. To comply with this section, a bank must give the cosigner a written notice prior to the cosigner's becoming obligated. The notice must be substantially similar to the model notice provided in the Board's regulation. The notice may be a separate document or may be included in the credit obligation.

A Co-Applicant or Co-Maker is a legal term that includes any primary obligor in any obligation. Such legal term does not include a Guarantor who is a secondary obligor.

A Guarantor becomes liable for the loan if the primary borrower(s) can't repay it. The difference between a Co-Applicant or Co-Maker and Guarantor is that a Co-Applicant or Co-Maker signs the debt obligation and is contractually liable without the bank needing to take any specific action to request payment from the Co-Applicant or Co-Maker.

A loan could have both a Co-Applicant or Co-Maker and a Guarantor.

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This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in the rendering of legal, accounting or other professional advice - from a Declaration of Principles adopted by the American Bar Association and a Committee of Publishers and Associations.
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