Until Debt Do Us Part: Eighth Circuit Creates Split On Violation Of ECOA For Spousal Guaranties

While the Circuits may disagree on who started the dispute, they certainly disagree on the definition of "applicant" under the Equal Credit Opportunity Act (ECOA). See 15 U.S.C. § 1691e; see 12 C.F.R. § 202.2(e). The Eighth Circuit found the statutory definition unambiguous. Hawkins v. Community Bank of Raymore, 761 F.3d 937 (8th Cir. 2014). The Sixth Circuit found the statutory definition ambiguous and gave deference to the regulatory definition promulgated by the Federal Reserve Board ("FRB"). RL BB Acquisition, LLC v. Bridgemill Commons Development Group, LLC, 754 F.3d 380 (6th Cir. 2014). Regardless of who started it, creditors now face potentially divergent results when spouses raise ECOA claims.

Both Hawkins and RL BB Acquisition, LLC involved wives challenging their guaranties of obligations owed by their husbands' companies. The ECOA prohibits discrimination in the offering of credit to an applicant based on race, age, . . ., and marital status. The FRB established Regulation B, including the spouse-guarantor rule, which gives standing to a spouse to challenge a guaranty which is required solely from a spouse - often a hotly disputed factual issue dependent on differing recollections of the parties. "The applicant's spouse may serve as an additional party, but the creditor shall not require that the spouse be the additional party." 12 C.F.R. § 202.7(d)(5).

In Hawkins, the two wives signed a guaranty of the $2 million obligation of their husbands' company, PHL Development LLC,, a company in which they had no legal interest. "The district court concluded that [the wives] were not 'applicants.'" In deciding whether to apply the regulation's definition, the Eighth Circuit conducted the Chevron analysis. The two-step analysis requires the court to first determine if the statute the regulation is interpreting is ambiguous. Here, the court held the statute's definition to be unambiguous. Since a guaranty is collateral to the loan, "a guarantor does not request credit and therefore cannot qualify as an applicant under the unambiguous text of the ECOA." Acknowledging the Sixth Circuit's prior, recent decision in RL BB Acquisition, LLC, the Eighth Circuit distinguished based on the different conduct, benefits, and legal consequences of a guaranty. Further, the Eight Circuit reminded us that the purpose of the ECOA was to "curtail the practice of creditors who refused to grant a wife's credit application without a guaranty from her husband."...