Spousal Signature Rules (Regulation B)
Consumer Affairs Update - March 2012
Published March 1, 2012 | March 2012 issue
To prevent marital status discrimination, Regulation B limits creditors from requiring spousal signatures on loan documents and mandates documentation of applicants’ intent to apply jointly on joint loans. These are not new developments. We have, however, identified more violations or “close calls” in recent years than in the past. Spousal signature violations are serious and can result in a referral to the Department of Justice. As such, we strongly encourage banks to provide periodic reminders on Regulation B’s requirements to lenders. We summarize some of the regulation’s requirements in this note.
Lenders operating with new lending procedures or underwriting standards may believe the bank is better protected by requiring a spouse to co-sign a loan or serve as a guarantor on a commercial or agricultural transaction. Regulation B makes clear that a creditor may not require a spouse to sign a loan if the applicant qualifies individually for credit and the spouse is not a joint applicant. And even if the applicant does not qualify individually for the credit, the bank should not require the spouse to co-sign the loan; the applicant should designate the co-signer in such situations. Also, a spouse should not be required to guarantee a business loan unless the spouse is a partner, director, or officer of the business or a shareholder of a closely held corporation.
To ensure compliance with Regulation B’s spousal signature rules, institutions should ensure that lenders document applicants’ intent to apply jointly on joint commercial and agricultural loans. Failing to document joint intent on commercial and agricultural loans is a common violation. A jointly signed financial statement is not generally sufficient to establish joint intent. As such, most banks must document joint intent on these loans using a different form or other method.1 We have found that most consumer-purpose loan applications adequately show joint intent, so fewer problems arise with these loan types.
Lenders should also be trained to limit inquiries about a spouse when a married applicant applies individually, particularly when the spouse will not use the account or support its repayment in any way. Bank lending policies should also clearly articulate when obtaining a spousal signature is acceptable and when it is not.
We encourage you to review a Consumer Compliance Outlook article on this topic that provides a more in-depth discussion of Regulation B’s marital status discrimination rules.
1 Appendix B to Regulation B contains model forms that can be used to document joint intent on various loan types.