The Equal Credit Opportunity Act (ECOA) prohibits discrimination against applicants for credit—but what about guarantors who agree to be responsible for repayment? A federal regulation treats spousal guarantors as “applicants” who can sue under EOCA, but two federal appellate courts disagreed with each other about the question. The Supreme Court agreed on March 2 to decide the answer.
The two plaintiffs in Hawkins v. Community Bank of Raymore are women who alleged that Community Bank of Raymore discriminated against them on the basis of marital status, in violation of ECOA, by requiring them to serve as guarantors for loans taken out by their husbands’ companies. Without reaching the question of whether discrimination occurred, the Eighth Circuit affirmed dismissal of the suit because ECOA’s anti-discrimination provision makes it “unlawful for any creditor to discriminate against any applicant” on the basis of a protected characteristic, and a guarantor is not an applicant.
“While a guarantor no doubt desires for a lender to extend credit to a borrower, it does not follow from the execution of a guaranty that a guarantor has requested credit or otherwise been involved in applying for credit,” the Eight Circuit reasoned. “Thus, a guarantor does not request credit and therefore cannot qualify as an applicant under the unambiguous text of the ECOA.”
The Eight Circuit expressly disagreed with the Sixth Circuit’s decision in RL BB Acquisition v. Bridgemill Commons Dev., et al. That court deferred to Regulation B, promulgated by the Federal Reserve and now administered by the Consumer Financial Protection Bureau, which defines “applicant” to “include any person who is or may become contractually liable regarding an extension of credit,” and expressly includes guarantors. That definition was a reasonable interpretation of an ambiguous statute, the Sixth Circuit held, because a guarantor “offers up her own personal liability to the creditor if the borrower defaults … in consideration for credit that she hopes the borrower will receive.”
Highlighting the circuit split, the plaintiffs in Hawkins petitioned for Supreme Court review on the questions of whether an “applicant” under ECOA includes a spousal guarantor and whether the Federal Reserve Board was authorized to include a spousal guarantor as an “applicant” in Regulation B. By accepting the petition (with both questions), the Supreme Court will likely resolve whether spousal guarantors can sue under ECOA, a decision that may also impact Regulation B’s inclusion of sureties and non-spousal guarantors as applicants who can sue under ECOA.
The merits of the discrimination claim are not before the Supreme Court, which will hear the case in the term starting October 2015.