Question:
On a business loan where we have personal guarantees, do we have to check MLA on the guarantees, since they are acting as individuals?
Answer:
No, because a business loan is not a covered transaction under the MLA.
The MLA applies to “consumer credit” offered to covered borrowers, as those terms are defined in the MLA.
Regarding the applicability of the MLA to guarantors, the Act is not clear as to whether it does apply or does not apply to guarantors. Conservatively, the bank would treat guarantors as if they fall under the scope of the MLA because they are to some extent “obligated on the consumer credit transaction…”
12 CFR § 232.3(g)(1) (“Covered borrower means a consumer who, at the time the consumer becomes obligated on a consumer credit transaction or establishes an account for consumer credit, is a covered member (as defined in paragraph (g)(2) of this section) or a dependent (as defined in paragraph (g)(3) of this section) of a covered member.”
12 CFR § 232.3(f)(1) (“Consumer credit means credit offered or extended to a covered borrower primarily for personal, family, or household purposes, and that is: …”)
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