The big topic of the quarterly “Outlook Live” presentation, which is an interagency update from our financial regulators, seemed to focus heavily on Spousal Signature policy with regard to violations of ECOA-Marital Status. I look at this as a warning, similar to the one our industry received on discrimination based on maternity and disability issues.
Generally when the regulators zone in on a topic, it is because our industry is violating that issue a lot. And sure enough, they state that this is the “most often” violation of Reg. B-ECOA.
In order to avoid penalties and problems during an exam, it might be a good time to revisit your policy and training regarding spousal signatures.
Regulation B-ECOA (Equal Credit Opportunity Act) specifically prohibits discrimination on the basis of Marital Status. Additionally, Reg. B contains special requirements for spousal signatures on notes or guarantees.
Seems Simple Enough!
The general rule is that a creditor cannot require the signature of an applicant’s spouse, unless it is a joint loan, if the individual qualifies on their own.
But wait, there’s more! When dealing with secured credit, like our industry, the State gets involved with their interpretations and rules because it involves “property”. And property as any married person knows is subject to property rights law. In those cases, the lender may require a signature on the Mortgage or security instrument based on state requirements. However, they may never require a spousal signature on the note unless it is a joint application. This will require you to understand State to State determination of their specific requirements, so that your company does not require a signature when no signature was required of the State.
It is also recommended that you keep on file the State interpretation BEFORE you create your policy, as you may be required to present that to an examiner to demonstrate your due diligence.
Another situation that your policy should anticipate is co-guarantors that are not the spouse. If the primary borrower does not qualify for a mortgage and they need a co-guarantor, you cannot require that this co-guarantor is the spouse! It can be another person.
Further, just because someone submits joint financial statements (like a tax return) in order to qualify; this does not mean that you can add the spouse to the loan application. If the person applying for credit is qualified on their own and their intent is to get the loan on their own, then the spouse should never be a condition of the loan.
What Risk Mitigation Strategies are recommended?
- Keep your written policy specific to the actual Regulation B policy and back it up with additional due diligence for State requirements.
- Ensure adequate training for your staff. Generally this goes beyond just reading the policy. A better practice is to test with scenarios, to ensure that the concept is solid for your originators, processors and underwriters. Keep evidence of this training to show the examiner.
- Secure evidence that the applicant’s meant to file jointly! This will require an agreement of the client(s) intent to file jointly versus singularly.
- And of course, self-audit for compliance. It’s better to find the issue and correct it, then to wait until the examiner finds the issue!
If you want more detailed information here is a great article: Regulation B and Marital Status Discrimination: Are you in Compliance? By: Carol Evans, Special Counsel for Fair Lending, and Surya Sen, Supervisory Consumer Financial Services Analyst.