Recently a parent wrote to me looking for help with a problem involving a co-signed debt. Seems she had agreed to cosign a loan to cover a dental procedure for her adult child. The amount wasn’t large, though it wasn’t insignificant either.
Once the dental office had her authorization, however, they approved a much larger line of credit and went ahead and completed much more extensive work. The patient couldn’t pay, so Mom and Dad were now on the hook for a huge bill. They are outraged, wondering why they have no rights as cosigners.
Unfortunately, this is not the first story of that kind that I have heard. One parent told me they didn’t discover that a car for which they had cosigned for their child had been repossessed until they were turned down for a mortgage because of the repo on their credit reports.
Another parent cosigned a credit card for her daughter and all was fine until years later when her now-divorced daughter’s ex ran up a large bill on the card and skipped out.
Why don’t cosigners have more rights?
Under the Credit CARD Act provisions that go into effect in February 2011, anyone under age 21 who wants a credit card must either show they have the income to handle it, or get a cosigner. If they do get a cosigner, the credit limit cannot be raised without the cosigners approval.
Shouldn’t that protection be extended to all cosigned credit cards and loans? In addition, shouldn’t cosigners have the right to be notified if the primary borrower misses a payment, rather than waiting until the loan ends up in collections?
If you have cosigned for a loan or credit card, weigh in on this one.
Detweiler – Personal finance author and Credit Advisor for Credit.com, Gerri contributes budgeting, debt
recovery and savings information online. She is also the co-author of Reduce Debt, Reduce Stress:
Real Life Solutions for Solving Your Credit Crisis.