The Notice to Cosigner Form
By
Keith E. Whann
The Federal
Trade Commission has enacted specific rules governing the rights of
cosigners. The Federal Code
of Regulations provides that it will be deemed an unfair or deceptive
practice for a lender or retail installment seller, directly or
indirectly, to misrepresent the nature or extent of cosigner liability to
any person or to obligate a cosigner unless the cosigner is informed of
the nature of his or her liability as cosigner before the cosigner becomes
obligated.
The provisions protecting the rights of cosigners
apply anytime a lender or retail installment seller enters into
an agreement with a consumer and another person renders himself
or herself liable for the obligation. A “consumer” is defined
as “a natural person who seeks or acquires goods, services, or money
for personal, family, or household use.” A “cosigner” is defined
as “a natural person who renders himself or herself liable for the
obligation of another person without compensation.” The definition
of cosigner includes any person whose signature is requested as
a condition to granting credit to another person, or as a condition
for forbearance on collection of another person’s obligation that
is in default. A person is a cosigner within the meaning of this definition
whether or not he or she is designated as such on a credit obligation.
A spouse whose signature is required on a credit obligation
is not a cosigner, however, if his or her signature is required
to perfect a security interest pursuant to state law.
A lender and
retail installment seller will not be liable for committing the unfair or
deceptive acts or practices enumerated in the Code if they comply with the
preventive requirement set forth in the Code.
The preventive requirement consists of providing the cosigner with
a separate document that contains the following statement (additional
language is not permitted) prior to the cosigner becoming obligated:
NOTICE
TO COSIGNER
You
are being asked to guarantee this debt.
Think carefully before you do.
If the borrower doesn’t pay the debt, you will have to.
Be sure you can afford to pay if you have to, and that you want to
accept this responsibility.
You
may have to pay up to the full amount of the debt if the borrower does not
pay. You may also have to pay
late fees or collection costs, which increase this amount.
The
creditor can collect this debt from you without first trying to collect
from the borrower. The
creditor can use the same collection methods against you that can be used
against the borrower, such as suing you, garnishing your wages, etc.
If this debt is ever in default, that fact may become a part of your credit record.
This
notice is not the contract that makes you liable for the debt.
In addition to the
foregoing disclosure, the dealer may include a section on the document
identifying the credit transaction wherein the following information is
provided: The purchaser’s
name, the date of the loan, the vehicle identification number, and the
total amount of the loan. The
dealer may also include a statement that the customer acknowledges having
read a copy of the notice prior to becoming obligated on the Retail
Installment Sales Contract and Security Agreement with a space for the
cosigner’s signature. |
