Knowing When to Walk Away
The U.S. Supreme Court recently heard oral arguments in Hawkins v. Community Bank of Raymore. The Court is considering a circuit split to determine if a spousal guarantor is an "applicant" protected by the Equal Credit Opportunity Act (ECOA). At issue is Regulation B which interpreted the ECOA's definition of "applicant" to include a spouse-guarantor. The question is should the term "applicant" include the person who is not directly applying for a loan. Chief Justice Roberts, along with Justices Alito and Scalia, focused on the plain meaning of the term "applicant" which would preclude the need to give deference to Regulation B. The questions from Justices Sotomayor and Ginsburg suggested a willingness to consider the term ambiguous and in need of further explanation by the CFPB, the agency tasked with overseeing the ECOA. Sixth Circuit precedent grants deference to the CFPB and applies Regulation B. The Eighth Circuit does not. Until the Court decides Hawkins, creditors should be wary of an unexpected ECOA violation being raised by a spouse-guarantor.
For a discussion of the circuit split and the issues in this case, please see "Until Debt Do Us Part: Eighth Circuit Creates Split on Violation of ECOA for Spousal Guaranties," with Richard A. Vance, The Banking Law Journal, September 2015. The briefing in this case is available here.