US Supreme Court Fails to Resolve Guarantors’ Status Under ECOA
By Barry A. Abbott, Joan E. Robinson and James B. Zack
On March 22, in an Equal Credit Opportunity Act (ECOA) case that was closely followed and highly anticipated, the U.S. Supreme Court (in a four-to-four vote) failed to issue a definitive ruling regarding whether Regulation B provides protections to spouses when they sign or are asked to sign guarantees. Hawkins v. Cmty. Bank of Raymore, 577 U. S. ____ (2016). In Hawkins, a bank entered into a series of loans and modifications with a two-member LLC and required personal guarantees not only from the two named LLC members, but also their spouses. When the LLC eventually defaulted on the loans, the bank attempted to collect under the spouses’ guarantees. In response, the spouses filed an action against the bank alleging that requiring their guarantees constituted discrimination on the basis of marital status, an ECOA violation. The legal issue stems from whether a non-applying spouse is an “applicant” under ECOA. ECOA defines an applicant as someone who “applies to a creditor for an extension of credit,” while Regulation B, purporting to interpret the statute, adds that the term “includes any person who is or may become contractually liable regarding an extension of credit.” As a result, under the regulatory interpretation of the statute, a guarantor is also an “applicant” and therefore protected by the anti-discrimination provisions of ECOA.
For more information, please contact the Financial Institutions Industry Team at Lane Powell: