Wednesday, March 4, 2015

Supreme Court Will Hear ECOA Case

            The Supreme Court has granted a petition for writ of certiorari which will determine whether spousal guarantors have standing to sue under the Equal Credit Opportunity Act (the “ECOA”) and whether the Federal Reserve Board’s Regulation B impermissibly extended the coverage of ECOA to spousal guarantors.  Hawkins v. Community Bank of Raymore, C.A. No. 14-520.  In August of 2014, the Eighth Circuit dismissed ECOA claims brought by two spousal guarantors, holding that the guarantors were not applicants with standing to bring ECOA claims. Hawkins v. Community Bank of Raymore, 761 F.3d (8th Cir. 2014).  The decision created a direct conflict between circuits and specifically, the Sixth Circuit’s decision in RL BB Acquisition, LLC v. Bridgemill Commons Dev. Grp, LLC, 754 F.3d 380 (6th Cir. 2014) (holding that the definition of guarantor was “easily broad enough to capture a guarantor”).

            In its broadest terms, the ECOA prohibits discrimination against applicants in credit transactions. “Applicants” are defined as being “any person who applies to a creditor directly for an extension, renewal, or continuation of credit…” 15 U.S.C. §1691a(b).  Regulation B meanwhile provides that “a creditor shall not require the signature of an applicant’s spouse or other person…on a credit instrument if the applicant qualifies under the creditor’s standard of creditworthiness for the amount and terms of the credit requested.”  12 C.F.R. §202.7(d)(1). 

            In Hawkins, the bank sought to enforce spousal guarantees provided by the wives of the primary applicants.  The wives countered by filing counterclaims under ECOA alleging that the guarantees were unenforceable and in violation of ECOA.  The district court dismissed the ECOA claims, holding that the spouses were not applicants under ECOA and therefore had no standing to sue.  The Eighth Circuit agreed, holding that a guarantor does not directly request credit and therefore does not apply for credit and is not a guarantor under the express definition of applicant provided by ECOA.  In their Petition, the guarantors contended that the Eighth Circuit’s decision did not give proper deference to the Federal Reserve Board’s broad authority to prescribe regulations to effectuate the ECOA’s purpose. 

            The issues which will be before the Court for consideration are: “ (1) Whether “primarily and unconditionally liable” spousal guarantors are unambiguously excluded from being Equal Credit Opportunity Act (ECOA) “applicants” because they are not integrally part of “any aspect of a credit transaction”; and (2) whether the Federal Reserve Board has authority under the ECOA to include by regulation spousal guarantors as “applicants” to further the purposes of eliminating discrimination against married women.”

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