Pub. 1 2020 Issue 2

17 ISSUE 2 | 2020 the means used by individuals to affirm the accuracy of information, so, joint signatures at the end of the application is usually not enough. The Commentary also provides that the lender may not assume that the borrower will transfer title to property as a means of removing the property from the reach of collectors. The message, seemingly aimed at commercial lenders, is that using spousal guarantees to shore up a loan is not an acceptable way to underwrite business credit. In fact, prudent, safe, and sound credit underwriting dictates taking a security interest in property needed to support the loan rather than getting guarantees on that amount, as one expert put it, to no more than a moral commitment in bankruptcy court. Other regulatory help The Federal Deposit Insurance Corporation (FDIC) issued two Financial Institution Letters (FIL) with guidance on Regulation B’s spousal signature requirements to assist lenders in complying with their obligation to treat applicants fairly. Both are now classified as inactive – apparently as part of an effort to lessen regulatory burden a couple years ago – but still contain relevant and current guidance. The earlier FIL (FIL-9-2002) includes steps financial institutions can take to avoid problems with the signature rules. Lenders should review and revise loan policies and procedures to eliminate those that are inconsistent with the spousal signature rules, specifically, those that require the: • Guarantee of a loan to a closely held corporation by the spouses of the partners, officers, directors, or shareholders of the corporation • Signature of the spouse on the note when the applicant submits a joint financial statement, or • Signature of the spouse on the note when jointly owned assets are offered as collateral This FIL also advises lenders to add guidance on state law regarding what signatures are necessary in particular situations. Loan staff should be trained periodically on these rules to make sure they remain aware of what is expected and how to avoid compliance trouble. Lastly, the FIL advocates that compliance reviews incorporate checks for spousal signature violations, particularly for loans to closely held corporations and business loans supported by jointly owned property. A flowchart in the later FIL (FIL-6-2004) takes lenders through the thought process of determining when an additional signature may be required, and when not. Both issuances are available on the FDIC’s website – www.fdic.gov – and can help all financial institutions, not just those directly supervised by the FDIC, avoid problems in this important area. If we can help, please feel free to contact us.  William J. Showalter, CRCM, CRP is a Senior Consultant with Young & Associates, Inc. ( www.younginc.com ), with over 35 years’ experience in compliance consulting, advising and assisting financial institutions on consumer compliance and compliance management issues. He also develops and conducts compliance training programs for individual banks and their trade associations, and has authored or co-authored numerous compliance publications and articles. Bill can be reached at (330) 678-0524 or wshowalter@younginc.com.