SCOTUS Ruling on Equal Credit Opportunity Act + the Implications for Lenders

Kegler Brown Creditors' Rights + Bankruptcy News

The United States Supreme Court recently decided an appeal of an Eighth Circuit case involving the Equal Credit Opportunity Act (“ECOA”), Hawkins v. Community Bank of Raymore, 577 U.S. __ (2016). In Hawkins, Valerie Hawkins and Janice Patterson alleged they were required to execute guaranties to the bank solely because they were married to their spouses; they claimed this was discrimination in violation of the ECOA. Under a technical reading of the ECOA, the Eighth Circuit Court found Hawkins and Patterson were not “applicants” within the meaning of the statute and, since only applicants had standing to bring a cause of action under the ECOA, they lacked standing and could not complain of ECOA violations. Hawkins v. Community Bank of Raymore, 761 F.3d 937 (8th Cir. 2014).

Contrary to the Eighth Circuit decision, the court in RL BB Acquisition, LLC. v. Bridgemill Commons Dev. Grp., 754 F.3d 380 (6th Cir. 2014) found that requiring Starr Stone Dixon to sign a guaranty for her husband’s loan gave her grounds to allege an ECOA violation. Reviewing the same issue of whether Starr was an “applicant,” the Sixth Circuit found ambiguity in the statute, opening up a cause of action for this guarantor.

In light of Justice Scalia’s recent passing, the Supreme Court decision in Hawkins was a 4-4 tie. This means that the decision has no precedential effect, and that the Eighth Circuit’s decision will continue to stand. As you can see above, the Hawkins decision is directly contrary to that found in the RL BB Acquisition case decided by theSixth Circuit, which means there continues to be an unresolved conflict amongst the circuits.

Bottom Line for Lenders

The law is clearly divided and requiring spouses to sign guaranties for their wives or husbands is a risky practice, regardless of the circuit in which the borrower resides. While it is acceptable for a lender to ask for a guaranty, a lender must be careful not to insist that the guarantor be the spouse of the borrower.