We have a consumer loan with a co-signer who did not receive any proceeds of the loan. Our agreement states that if the debt is ever in default, that fact may become a part of the co-signer’s credit record. Does the Consumer Fraud and Deceptive Business Practices Act require us to provide a co-signer on a consumer loan with fifteen days’ notice before reporting a delinquent loan to credit reporting agencies? What negative information can we report with respect to the co-signer? Can we report the borrower’s late payments on the co-signer’s file with the credit bureaus?

Yes, your bank must notify a co-signer of the primary borrower’s delinquency at least fifteen days before reporting adverse information about the co-signer to a credit reporting agency. The Illinois Consumer Fraud and Deceptive Business Practices Act (“Consumer Fraud Act”) requires lenders to notify co-signers before reporting adverse information to a consumer reporting agency. While the term “co-signer” is undefined in that act, an Illinois court has found that “[a]ny signers who do not receive property, such as those whose purpose is solely to lend credit, are ‘cosigners’ under Section 2S [of the Consumer Fraud Act].” As a co-signer, we believe they are entitled to the fifteen-day notice requirement in the Consumer Fraud Act.

Also, you may report the primary borrower’s late payments as negative information on the co-signer’s credit file, as you indicate in your co-signer agreement; this is a standard practice. The Fair Credit Reporting Act (FCRA) requires your bank to provide accurate and complete information to consumer reporting agencies, and it is accurate to report late payments and delinquencies on the loan for a co-signer when loan payments are missed.

For resources related to our guidance, please see:

Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/2S (“No person may report adverse information to a consumer reporting agency, provide information to a collection agency or take any collection action regarding a cosigner of an obligation unless prior thereto, such person has notified the cosigner by first class mail that the primary obligor has become delinquent or defaulted on the loan, that the cosigner is responsible for the payment of the obligation and that the cosigner must, within 15 days from the date such notice was sent, either pay the amount due under the obligation or make arrangements for payment of the obligation. In the event that the cosigner pays or makes arrangements to pay the obligation, no adverse information shall be reported regarding the cosigner.”)
Qualkenbush v. Harris Tr. & Sav. Bank, 219 F. Supp. 2d 935, 941 (N.D. Ill. 2002) (“Any signers who do not receive property, such as those whose purpose is solely to lend credit, are ‘cosigners’ under Section 2S.”)
Fair Credit Reporting Act, 15 USC 1681s–2(a)(1) (“(A) Reporting information with actual knowledge of errors. A person shall not furnish any information relating to a consumer to any consumer reporting agency if the person knows or has reasonable cause to believe that the information is inaccurate. (B) Reporting information after notice and confirmation of errors. A person shall not furnish information relating to a consumer to any consumer reporting agency if (i) the person has been notified by the consumer, at the address specified by the person for such notices, that specific information is inaccurate; and (ii) the information is, in fact, inaccurate.”)
TransUnion, The Benefits and Issues of Co-Signing a Loan (“Co-signing on a loan or credit card is a serious matter that should not be entered into lightly. Essentially, when you co-sign on a loan, you are taking on legal responsibility for the account, and it will appear as your obligation on your credit report. Should the other person miss payments or default on the loan, your credit reports will show the delinquencies and the creditor may require you to pay.”)
Equifax, Protect Yourself and Your Credit When Choosing a Co-signer (“Be aware: When you take out a loan with a co-signer, both of your credit scores are on the line. If you make regular, on-time payments, it will reflect positively on your credit score and you might be able to move forward in your financial life without a co-signer. If you miss payments or are chronically late, however, that will show in your co-signer’s credit history. If you think you might not be able to make a payment, let your co-signer know and give him or her a chance to make the payment for you.”)
Experian, How Does Cosigning Affect Credit? (“When you co-sign for a loan, you are saying that if the person you are co-signing for doesn’t pay the debt, you will. That loan will appear on both of your credit reports along with the payment history. If the other person doesn’t pay, and the account becomes late, that late payment is going to show up on your credit report, and it’s going to hurt your credit history too.”)