The Supreme Court has agreed to address a split between circuits that emerged last summer centering on whether the Equal Credit Opportunity Act (the “ECOA”) permits financial institutions to require the spouse of a loan applicant to guaranty the loan. The Court will seek to answer two unresolved questions:
1. Are “primarily and unconditionally liable” spousal guarantors unambiguously excluded from being ECOA “applicants” because they are not integrally part of “any aspect of a credit transaction”?
2. Did the Federal Reserve Board have authority under the ECOA to include by regulation spousal guarantors as “applicants” to further the purposes of eliminating discrimination against married women?
Basics of the Circuit Split
The subject of a previous post on the Florida Banking Law Blog; the split between the Sixth and Eighth Circuit Courts of Appeal boils down to whether the Federal Reserve Board violated the law when it created regulations providing protection to spousal guarantors. The ECOA (codified at 15 U.S.C. § 1691 et seq.) states that no creditor may discriminate against an “applicant” in any aspect of a credit transaction on the basis of marital status, defining an “applicant” as including any person applying for an extension, renewal or continuation of credit. The ECOA therefore prohibits financial institutions from requiring that the spouse of a person submitting a credit application also join in the application merely because of the marital relationship. Noticeably absent from the ECOA’s definition of “applicant” is any reference to “guarantors”.
The Federal Reserve Board, charged with implementing the ECOA at the time through the adoption of regulations, stepped in and explicitly stated that the term “applicant” includes guarantors. Interpreting the language of the ECOA and the Federal Reserve Board’s regulations, the Eighth Circuit Court of Appeals in Hawkins v. Community Bank of Raymore held that the Federal Reserve Board impermissibly expanded the protections provided under the ECOA to an extent not originally contemplated by Congress when it passed the Act. The Sixth Circuit Court of Appeals in RL BB Acquisition LLC v. Bridgemill Commons Development Group, LLC, meanwhile, determined that the Federal Reserve Board only clarified exactly which individuals Congress meant to protect through the ECOA. The Sixth Circuit relied heavily on public policy in reaching its conclusion, finding that including guarantor spouses under the ECOA’s protections aligned with the overall goal of the statute: “to eradicate credit discrimination waged against women, especially married women whom creditors traditionally refused to consider for individual credit.”
Where Florida Courts Fall
Although no opinion in Florida directly addresses the split, the case law indicates that Florida courts adhere to the Sixth Circuit’s conclusion that the Federal Reserve Board acted within the scope of its authority in promulgating regulations defining “applicant” as including guarantors. Depending on the outcome of the Supreme Court’s looming decision, however, we may see a reversal come Fall 2015. Stay tuned for further updates.
