Regulation B - Joint Intent Primer
This article will help to answer the questions of “Who”, “When” and “How” when complying with the statutory requirements of the CFPB’s Regulation B Joint Intent rules under 12 CFR 1002.7(d) and the commentary.
Let’s first take a look at the “Who”. The regulation defines the “Who” as any person or entity. That means if two or more persons apply jointly, joint intent is required. It also means that if a person and a business apply for credit, then joint intent applies; as well as when two or more business entities apply. The applicant’s role on the application does not matter, regardless if it is as a co-borrower, co-signer or guarantor.
The “When” is very simple. Joint intent is required at the time of application; therefore, any subsequent event to the initial application does not require evidence of joint intent. Regardless of whether the application is provided in writing or orally, it is incumbent upon the financial institution to determine who is applying for credit at the inception of the application process.
Lastly, the third question to be answered is the “How”. The regulation states that the evidence of joint intent must be distinct, so that the applicants are well aware that they are acknowledging that they are applying for joint credit. Most consumer applications have a separate and distinct section to evidence the acknowledgment of joint intent. However, not all financial institutions have or provide a commercial loan application; therefore, a financial institution may have a stand-alone document that the applicants can sign or initial. It is also permissible for the loan officer to obtain joint intent verbally from the applicants, so long as it is adequately documented. Again, it is always at application, so obtaining evidence of the intent to apply jointly at closing is not permissible or acceptable.
Now that we have covered Who, When and How, let’s discuss the inevitable “other” scenarios that may come up.
The first is that a financial institution may, per policy, require all owners of a business to provide a personal guaranty on the note. Since this deemed to be a subsequent event, no joint intent acknowledgement is required.
The second is when an applicant is deemed to be uncreditworthy and the financial institution requires another person or entity to bolster the credit. No joint intent is required; however, adequate file documentation must be maintained, supporting the need for the added person or entity. A prime example is when an entity applies for credit and the ability to repay the debt is tied to another entity. The institution has every right to require another person or entity on the note; however, it may not specifically require the other entity, if there is an issue with creditworthiness.
The third is when the collateral being offered is held jointly. The regulation states that the institution may require a hypothecation agreement or security agreement to be signed by all parties; however, this does not allow or permit the institution to require the other person to sign the note in any capacity.
This section of the regulation was written so that an institution would not require additional signatures on promissory notes that are unnecessary. Further an emphasis has been made, specifically in the area of spousal signatures and guarantees. The thought process is that some institutions may require signatures when not allowed.
Therefore, and as noted above, it is imperative that regardless of the scenario, the intent to apply jointly is determined and acknowledged at the time of the application (either by the applicants or the loan officer) and that adequate file documentation is maintained to evidence compliance.