Sunday, June 14, 2015

CFPB Files Amicus Brief in ECOA Case

The CFPB has filed an amicus brief in Hawkins v. Community Bank of Raymore, the ECOA case currently pending before the United States Supreme Court.  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 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.” Not surprisingly, the CFPB’s brief favors the petitioner and takes the position that Regulation B is entitled to deference and that its definition of “applicant” is a permissible interpretation of ECOA’s text.

The CFPB brief makes the following arguments in support of reversal:

  • For thirty years Regulation B has included guarantors with ECOA protection.  Congress has made amendments to ECOA but has not seen fit to amend the Board’s rules and therefore, the Court should give deference to the rulemaking.
  • Regulation B’s inclusion of guarantors as applicants is reasonable because the CFPB believes that guarantors impliedly request the extension of credit, “are often extensively involved in the application process,” and “are commonly required to provide financial information and subjected to creditworthiness analysis comparable to that applied to principal borrowers.” (Interestingly, in most ECOA/guarantor cases, the opposite is argued in support of discrimination – that the guaranty was blindly requested without any consideration of independent creditworthiness); and
  • Regulation B’s definition of applicant to include guarantors furthers the purpose of ECOA – eliminating marital status discrimination.  To its point, the CFPB notes that requiring a spousal guaranty not only discriminates against the borrower who is denied the ability to obtain individual credit but also against the guarantor who is required to assume debt by virtue of being married to the applicant.


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