Do you understand the details in guaranteeing a loan?

Understanding Loan Guarantees
When standing guarantee for a loan, be specific about your limit of guarantee and assure your security will be released on final payment of the loan.
Customer A alleges that on December 1st, 1998, she signed a Memorandum of Deposit of Stocks and Shares and other Marketable Securities as guarantor for a loan taken out by Customer B. She also deposited as security, certain units of the Money Market Fund of the Trinidad and Tobago Unit Trust Corporation registered in her name.

The loan, Customer A alleges, was paid off in full in July 2002 but the bank refused to release the security. Instead, the bank indicated to Customer A that the security would be used against a loan for another account transacted by Customer B in respect of Customer B’s business venture.

After negotiations with the bank to liquidate the second loan, and having arrived at an agreed settlement, the bank still refused to release Customer A’s security, indicating that the security would be switched to secure an overdraft facility incurred by Customer B.

In her letters to the bank in July 2003, Customer A requested the bank provide her with details of the amounts for which she was liable as guarantor so that she might make arrangements to settle. However, no details were provided by the bank. The customer stated that she was under the impression when she tendered her shares as security for Customer B’s loan, that they would be used as guarantee for the particular loan and not be utilised for any and all other debts of Customer B. When she requested a copy of the document from the bank, she was only provided with the front page which did not state that she was responsible for all debts of Customer B.

The Office of the Financial Services Ombudsman acknowledged its gratitude for the kind consideration given by the bank to Customer A’s matter which led to resolution of the case even though it fell outside the time-frame stated in the terms of reference for the Office.

Lessons Learnt

When providing guarantee for the loan of a third party, try and be specific as to the particular indebtedness you are guaranteeing and establish, if possible, the limit on the guarantee and an assurance that your security will be released as soon as the particular debt is repaid.