Hi! It’s Tory Haggerty from Tuscan Club University’s Fair Lending School and welcome to another Fair Lending Short.
In this Fair Lending Short I want to talk about co-signers and specifically the conversations lenders have on requiring co-signers.
I have a daughter who, in high school, had a nasty driving habit. She used to identify cars on the roadway and then she would hit them. That was one of her favorite things to do. She would run her car into other cars on the roadway and she got really good at it. The third time was her best. She totaled her car – no one was hurt, but there were some hurt feelings. Three times she wrecked her car and then she didn’t drive for almost two years.
Fast forward, she goes to college and some of her tickets and accidents have dropped off her record, and now she wants to buy a car. So she comes into your organization and she doesn’t have bad credit, she just doesn’t have any credit. So she wants to get a loan and the lenders tells her she doesn’t have an established credit history, so they’ll need her dad to co-sign.
Well hold on. If you, as a lender, start recommending who the co-signers are, you potentially start crossing prohibited basis boundaries. In this case, familial status.
Now I get it, familial status is under the fair housing act, and we’re talking about a car loan. But it also happens that we may need your wife, or your husband to co-sign, or your brother, right? If you suggest who a co-signer should be, you potentially are crossing some type of prohibited basis boundary.
The way the conversion should go is to communicate that the applicant doesn’t have an established credit history and that you’re going to need a credit-worthy co-signer. Then let the applicant ask if their dad can come and co-sign.
That’s the way the conversation should go. Make sure you train the lenders not to suggest who the co-signer is, only communicate the fact that a co-signer is required, and let the applicant suggest who that should be.
Thanks for reading!!