8th Circuit Disagrees with 6th Circuit – Spouse-Guarantor Cannot Assert ECOA Claim as an Affirmative Defense to Collection Action
The Eighth Circuit Court of Appeals recently held that a spouse-guarantor cannot use the Equal Credit Opportunity Act (“ECOA”) as an affirmative defense to a collection action based on their guaranty.
I. ECOA Prohibits Discrimination Against “Applicants” Based On Marital Status
A. ECOA bans creditor from requiring a spouse to serve as a guarantor.
As discussed in our earlier article “Court Holds a Spouse-Guarantor Can Assert ECOA Claim As Affirmative Defense to Collection Lawsuit, ECOA and Regulation B prohibit discrimination against a borrower based on their marital status. ECOA prohibits a creditor from requiring a credit applicant’s spouse to serve as a guarantor. If the applicant is not independently creditworthy, the creditor may ask that another person co-sign the promissory note, but cannot require the person co signing to be the spouse.
B. Spouse-guarantor not an “applicant” under ECOA, and cannot assert an ECOA violation as affirmative defense in a collection suit.
Under ECOA, only an “applicant” can bring a claim for a violation or utilize a violation as an affirmative defense to collection. ECOA defines “applicant” narrowly to include only those who “request credit.” However, Regulation B includes “guarantors, sureties, and endorsers” within the definition of “applicant.” Courts are left to decide whether to apply the more narrow definition in ECOA, or the broader definition in Regulation B.
The Eighth Circuit Court of Appeals, relying on a number of lower Missouri court rulings, applied the narrower ECOA definition of “applicant.” The Court explained that by definition, the guarantor is not applying for anything, and does not “request credit.” Thus, spouse-guarantors in the Eighth Circuit cannot raise an ECOA violation as an affirmative defense to a collection action against them.
C. Circuit split makes U.S. Supreme Court ruling on ECOA likely.
This Eighth Circuit ruling is in direct conflict with the Sixth Circuit Court of Appeal’s ruling earlier this summer. When two circuit courts rule in conflicting ways regarding the same federal statute, it is common for the U.S. Supreme Court to take up the question and settle the conflicting interpretations. Be watching for a Supreme Court case interpreting this portion of ECOA.
Until the Supreme Court decides to take up the issue, there will be uncertainty as to whether the narrower ECOA definition of “application” or Regulation B’s broader definition will apply. However, the Eighth Circuit’s ruling is good news for lenders in Nebraska, Iowa, Missouri, Minnesota, North Dakota and South Dakota. This Eighth Circuit ruling means it’s unlikely that a spouse-guarantor in the above states can bring a lawsuit alleging an ECOA violation, or use an ECOA violation as an affirmative defense if the lender brings a collection action against the spouse-guarantor.