U.S. Supreme Court Upholds Eighth Circuit Ruling that ECOA Does Not Apply to Spousal Guarantors

April 2016

On March 22, 2016, the U.S. Supreme Court, on a 4-4 split vote following the death of Justice Antonin Scalia, let stand the U.S. Court of Appeals for the Eighth Circuit's decision in Hawkins v. Community Bank of Raymore, finding that the marital status protections under the Equal Credit Opportunity Act (ECOA) apply only to loan "applicants" and that spouse-guarantors are not "applicants." In administering ECOA, the Federal Reserve Board had issued Regulation B, which defined "applicant" to include guarantor. The Eighth Circuit had found no basis for the Regulation B application because the statute itself is clear that it applies only to applicants. Given Justice Scalia's adherence to the actual text of statutes, he likely would have voted to uphold the Eighth Circuit's decision in Hawkins as well, which would have provided nationwide guidance on the question. Instead, the current circuit split remains unaltered.

In upholding Hawkins, the Supreme Court issued no written opinion but merely a one-line decision. As a result of the tied vote, the Supreme Court's decision in Hawkins applies only to the Eighth Circuit states (Missouri, Arkansas, Nebraska, Iowa, Minnesota, South Dakota and North Dakota). Unfortunately, this leaves significant uncertainty for lenders that are located outside of these states, or even to lenders located in both the Eighth Circuit and other circuits.

In Hawkins, two wives who signed guarantees of business loans made to their husbands sued the Bank of Raymore, claiming that their guarantees violated the ECOA and that they should not have been required to sign a guaranty for their husbands to borrow money. The wives alleged that the bank discriminated against them on the basis of their marital status, and they sought to have their guarantees declared void. In effect, the wives argued that the loans should have been made with only the husbands' guarantees, and the wives were only asked to sign guaranties because they were married to the loan applicants. The Bank argued that ECOA's anti-discrimination provisions were never intended to apply to spouse-guarantors because they were not "applicants" for credit under ECOA and Regulation B. The Eighth Circuit held that "a person was not qualified as an applicant under the statute solely by virtue of executing a guaranty to secure the debt of another. The plain language of the ECOA unmistakably provides that the person is an applicant only if he/she requests credit. But a person does not by executing a guaranty, request credit."

In contrast, the Sixth Circuit, in RL BB Acquisition, LLC vs. Bridgemill Commons Development Group, held that Regulation B was entitled to deference, and the circuit court concluded that ECOA protected spouse-guarantors from discrimination as an applicant for credit. The Supreme Court's decision did not change the law in the Sixth Circuit, and courts outside the Eighth Circuit may still apply ECOA to prohibit a commercial lender from requesting a guaranty solely because the prospective guarantor is married to the borrower.

The Supreme Court's split vote is somewhat good news for banks located wholly within the Eighth Circuit, because ECOA protections now apply only to loan "applicants" and not to spousal guarantors. Unfortunately, for lenders outside the Eighth Circuit, or with branches inside and outside the Eighth Circuit, uncertainty remains. Wherever located, lenders should proceed with caution and obtain clear documentation of the process when requesting spousal guarantees. We suggest that banks with multiple locations use a venue clause in their loan documents that names any district court within the Eighth Circuit as the place where all litigation must be conducted.