If you co-sign your kid’s car loan, and junior goes into default, the lender would have to notify you under a bill proposed in the General Assembly.
The notification provision would apply to any guarantors—not just parents—on loans in Georgia where the primary borrower goes into default. The bill is designed to help protect the credit of not just the main borrower, but those that lend personal guarantees.
House Bill 245’s lead sponsor, state Rep. Rusty Kidd, I-Milledgeville, had his credit dinged temporarily after his sister, who was trying to renegotiate her mortgage, was told by her bank to miss a payment.
Kidd, as a guarantor, was flagged along with his sister for defaulting on a loan.
Kidd said he wasn’t aware of the issue until he checked his credit report. Kidd said his banker and a few fellow legislators have told him they too have experienced the same thing.
“It’s obviously happening to lots and lots of people, but they might not know it until they check their credit report,” Kidd said. “If you have a report that says that you defaulted on a loan and you haven’t, you’re not going to get the credit [you need].”
Kidd said his situation was quickly rectified by his sister’s mortgage lender. But the ramifications to a credit report can be substantial to the consumer.
Ensuring notification would protect consumers as well as help banks collect what they’re owed, Kidd said.
The bill, currently in committee, doesn’t spell out any penalties for lenders, nor does it specify a form of communication.
Industry experts say most lenders likely notify borrowers and co-signers already. Notification in some cases can be difficult if co-signers move without notifying the financial institution, and lenders shouldn't be held liable in those cases.
Brian Schmitt, CEO of The PrivateBank-Georgia, said bankers performing proper due diligence would notify a guarantor if a loan goes into default.
“It’s a normal course of business and just common sense,” Schmitt said.
Rick Foley, president and CEO of Delta Community Credit Union, said his institution notifies all secondary borrowers when a loan is delinquent with a written notice on the 11th day after a loan’s due date.
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