If you require a cosigner for a loan applicant who does not meet your standards of creditworthiness or for debtors in default, the Rule requires you to inform each cosigner of the potential liability involved before the cosigner becomes obligated for the debt. You must use the following statement:
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 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 creditor can collect this debt from you without first trying to collect from the borrower. The creditor 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 debt.
If a state statute or regulation requires a different notice to cosigners, you may include that notice on the document if it is not inconsistent with the notice required by the Rule. If a statement in the FTC notice (such as one that says you can collect from the consigner without first trying to collect from the primary debtor) is inaccurate under state law, you may omit it from the notice used in that state.
You need not give the notice to someone who signs a security agreement, when there is no personal liability for the debt. On a revolving charge account, you only need to give the notice to a cosigner once, when the account is opened.
You may print the cosigner notice on your letterhead and include identifying information, such as the credit account number, the name of the cosigner, the amount of the debt, and the date. You also may provide a signature line for the cosigner to acknowledge receipt of the notice. However, you may not include any additional statement in the notice that would distract the cosigner's attention from the message in the notice (But you may add whatever additional information you wish to your own file copy of the notice.) You may not attach the notice form to other documents unless is appears before any other document in the package.
The cosigner notice should be in the same language as the agreement to which it applies. For example, if the agreement is in Spanish, the cosigner notice also should be in Spanish.
If you use cosigners in your consumer credit contracts and these contracts were signed on or after March 1, 1985, you should provide those cosigners with the notice required by the Rule. If you are not doing so, you are in violation of the Rule.
A "cosigner" is different from a co-buyer, co-borrower, or co-applicant because a cosigner receives not tangible benefit from the agreement, but undertakes liability as a favor to the main debtor who would not otherwise qualify for credit. On the other hand, a co-buyer (one who shares in the purchased goods), a co-borrower (one who shares in the loan proceeds), or a co- applicant or co-cardholder (a person who is authorized to use a credit card account) do receive benefits. Therefore, they are not considered cosigners under the Rule, and you are not required to provide the notice to them.
For more information, see here: https://www.ftc.gov/tips-advice/business-center/guidance/complying-credit-practices-rule
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