Requiring a Parent or Guardian to be a Co-Borrower

Yes, we believe you may require the co-borrower for a loan to a minor to be the minor’s parent or guardian, as a minor cannot enter into a legally binding contract in Illinois.

In Illinois, the general rule is that an agreement with a minor is voidable by the minor until they reach the age of majority (which is eighteen in Illinois). If a minor cosigns a loan with their parent or guardian, the loan agreement would not be enforceable against the minor cosigner until they reach the age of eighteen and ratify the agreement. We note that there are some exceptions to this general rule, as in cases of emancipated minors or contracts for the purpose of obtaining “necessities,” such as food, lodging, clothing, and education. However, you still would be able to enforce the agreement against the parent or guardian who cosigns the loan, provided the minor and the parent or guardian are jointly and severally liable for the entire debt under the terms of the agreement.

If the minor owns the vehicle as the sole owner, they also could void the security agreement until they reach the age of majority. On the other hand, if the parent or guardian is the owner or co-owner of the vehicle, the security agreement should be enforceable against the parent or guardian’s ownership interest in the vehicle.

Also, we do not believe that Regulation B would prohibit requiring a cosigner on a vehicle loan. Regulation B prohibits discrimination against a credit applicant based on age — provided that the applicant has the capacity to enter into a binding contract. Regulation B also states that if the personal liability of an additional party is necessary to support the credit requested under a creditor’s standards of creditworthiness, a creditor may request a cosigner.

Death of the Parent or Guardian Co-Borrower

The terms of your loan agreement will dictate what happens if the adult co-borrower dies, leaving only the minor on the loan. For example, if the parent or guardian is jointly and severally liable for the entire debt under the terms of the agreement, and their death constitutes an event of default, you may be able to enforce the entire debt against their estate.

Pulling Credit and Reporting Negative Credit Information on a Minor

We are not aware of any federal or Illinois law prohibiting banks from pulling credit on a minor or reporting accurate credit information about minors. The Fair Credit Reporting Act (FCRA) and Regulation V do not contain any references to minors or to the ages of consumers about whom the bank may be reporting credit information, and they both define “consumer” simply as “an individual.” However, we would not recommend reporting negative credit information on a minor based on a loan they have cosigned with a parent or guardian, as such a loan agreement is voidable by the minor.

For resources related to our guidance, please see:

• Dixon National Bank v. Neal, 5 Ill.2d 328, 336 (1955) (“It is well established that contracts of minors which inure to their benefit are not void, but voidable only at the election of the minor on arrival at maturity. . . . A minor may disaffirm a contract made by him during minority within a reasonable time after reaching his majority or, he may by acts recognizing the contract after becoming of legal age, ratify it.”)

• Illinois Code of Civil Procedure, 735 ILCS 5/2-619(a) (“Defendant may, within the time for pleading, file a motion for dismissal of the action or for other appropriate relief upon any of the following grounds. . . . (8) That the claim asserted against defendant is unenforceable because of his or her minority or other disability.”)

• Fletcher v. Marshall, 260 Ill.App.3d 673, 675 (2nd Dist. 1994) (“A contract of a minor is deemed ratified if the minor fails to disaffirm it within a reasonable time after attaining majority. . . . Also, a minor ratifies a contract if, after becoming of age, he ‘does any distinct and decisive act clearly showing an intention to affirm [the contract].’”)

• Regulation B, 12 CFR 1002.6(a) (“Except as otherwise provided in the Act and this part, a creditor may consider any information obtained, so long as the information is not used to discriminate against an applicant on a prohibited basis.”)

• Regulation B, 12 CFR 1002.2(z) (“Prohibited basis means race, color, religion, national origin, sex, marital status, or age (provided that the applicant has the capacity to enter into a binding contract