[Code of Federal Regulations]
[Title 12, Volume 3, Parts 220 to 299]
[Revised as of January 1, 2001]
From the U.S. Government Printing Office via GPO Access
[CITE: 12CFR227.14]

[Page 454-455]
 
                       TITLE 12--BANKS AND BANKING
 
                   CHAPTER II--FEDERAL RESERVE SYSTEM
 
PART 227--UNFAIR OR DECEPTIVE ACTS OR PRACTICES (REGULATION AA)--Table of Contents
 
                    Subpart B--Credit Practices Rule
 
Sec. 227.14  Unfair or deceptive practices involving cosigners.

    (a) Prohibited practices. In connection with the extension of credit 
to consumers, it is:
    (1) A deceptive act or practice for a bank to misrepresent the 
nature or extent of cosigner liability to any person; and
    (2) An unfair act or practice for a bank to obligate a cosigner 
unless the cosigner is informed prior to becoming obligated of the 
nature of the cosigner's liability.
    (b) Disclosure requirement. (1) A clear and conspicuous disclosure 
statement shall be given in writing to the cosigner prior to becoming 
obligated. The disclosure statement shall be substantially similar to 
the following statement and shall either be a separate document or 
included in the documents evidencing the consumer credit obligation.

                           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

[[Page 455]]

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 bank can collect this debt from you without first trying to 
collect from the borrower. The bank 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.

    (2) In the case of open-end credit, the disclosure statement shall 
be given to the cosigner prior to the time that the cosigner becomes 
obligated for fees or transactions on the account.
    (3) A bank that is in compliance with this paragraph may not be held 
in violation of paragraph (a)(2) of this section.