Question – My granddaughter has just completed her University degree this year and fortunately she has found employment. In the course of her University studies, she drew down a loan from our local Credit Union in respect of which I went guarantor. My granddaughter’s earnings currently are not substantial and for this reason, she is not in a position to discharge the loan as per the Credit Agreement. The Credit Union is putting pressure on me as a guarantor and my query is as to whether they could commence legal proceedings.
The law surrounding guarantees has undergone a lot of change in the last number of years. It is not unusual for Credit Unions to insist on a guarantor and in particular in relation to students drawing down loans. Indeed, in the course of our work, we have come across such cases where a grandparent has guaranteed a loan. If one was to examine a Credit Agreement and the guarantee attaching thereto, it is fair to say that a guarantee can be enforced so long as there is an identifiable guarantor. However, the law is not that straightforward in that the background to the signing of the guarantee has to be examined. It is fair to say at this point in time and due to cases adjudicated upon by the Irish Courts that each and every Credit Union should advise a potential guarantor that they should seek independent legal advice as to the legal obligations surrounding same.
This direction from the Credit Union should be in writing and it is the practise of a lot of Credit Unions to issue a one page document to a potential guarantor outlining that independent legal advice should be sought. This is not a practice right across the board. However, if it is the case that the potential guarantor turns down the opportunity to take independent legal advice, then the guarantee should appear to be enforceable on the face of it. However, I would have to caution the advice here on the basis that each case would have to be looked at on its own facts.
We have come across instances of where a guarantor did not have adequate reading ability and for this reason; the guarantee was unenforceable due to the fact that the guarantor could not possibly have understood the nature of the guarantee clause within the Credit Agreement without detailed explanation from the Credit Union. In some cases where we have acted for Credit Unions, the guarantee was not enforceable simply because the potential guarantor was not given the opportunity of obtaining independent legal advice. This is an area of law that is fraught with difficulty and there is no doubt you should seek legal advice on the particular circumstances in which you signed as guarantor.