The application of the Equal Credit Opportunity Act (ECOA) to spousal guaranties is a developing area of law, resulting in a number of recent appellate opinions. One opinion from the Eighth Circuit Court of Appeals, Hawkins v. Community Bank of Raymore, Case No. 13-3065, casts doubt on the viability of an ECOA defense for guarantors, finding that guarantors are outside the scope of its protections.
The ECOA makes it “unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction . . . on the basis of . . . marital status.” 15 U.S.C. § 1691(a). “Applicant” is a defined term and means “any person who applies to a creditor directly for an extension, renewal, or continuation of credit, or applies to a creditor indirectly by use of an existing credit plan for an amount exceeding a previously established credit limit.” 15 U.S.C. § 1691a(b). The implementing regulation for the ECOA, Regulation B (Reg B), interprets and expands the definition of “applicant” to include guarantors, which are otherwise excluded. 12 CFR 202.2(e).
The guarantors in Hawkins asserted application of the ECOA as an affirmative defense to liability. The lender argued that because the guarantors were not “applicants” for credit within the meaning of the statutory definition, they could not assert an ECOA defense. Applying settled principles of statutory construction, the court concluded the definition of “applicant” under the ECOA clearly excluded guarantors and Reg B’s expansion of the definition was inconsistent with Congress’ intent. Based on these conclusions, the court rejected the guarantors’ defense and upheld liability under their guaranties.
In its opinion, the court noted a recent decision from the Sixth Circuit, RL BB Acquisition, LLC v. Bridgemill Commons Dev. Grp., 754 F.3d 380, considering the same issue. In this case, the Sixth Circuit performed the same analysis, but reached a different conclusion. The Sixth Circuit found the definition of “applicant” under the ECOA was ambiguous and accepted the expanded definition under Reg. B. This sets up a split between circuits and an issue certain to be litigated in state and federal courts across the country.
UPDATE: The US Supreme Court granted the guarantors’ petition for writ of certiorari in Hawkins v. Community Bank of Raymore, creating expectations the Court would resolve the current circuit split and issue the final word on whether the ECOA affords protection to guarantors. On March 22, 2016, the Court affirmed the Eighth Circuit in a per curiam opinion by an equally divided vote–an outcome effected by the passing of Justice Antonin Scalia. The import of this ruling is to affirm the Eighth Circuit without creating precedent in other jurisdictions. For now, those seeking clarity about the application of the ECOA will continue to wait.