Court Holds A Spouse-Guarantor Can Assert ECOA Claim As Affirmative Defense To A Collection Lawsuit
The Sixth Circuit Court of Appeals recently held that when a collection suit is filed against a spouse-guarantor, the spouse-guarantor can assert violation of the Equal Credit Opportunity Act (“ECOA”) and Regulation B as an affirmative defense.
I. ECOA Prohibits Discrimination Based On Marital Status
A. ECOA bans creditor from requiring a spouse to serve as a guarantor.
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. “Applicant” includes “guarantors,” therefore, spouse-guarantor can enforce the ban by bringing an independent lawsuit for violation of ECOA and Regulation B.
Under the ECOA, only an “applicant” can bring a lawsuit for violation or utilize a violation as an affirmative defense to collection. ECOA defines “applicant” as a person who applies for credit. However, Regulation B, which implements the ECOA, says “applicant,” for the purposes of enforcing the ban of requiring spousal guarantees, includes guarantors, sureties, and endorsers. The Sixth Circuit Court of Appeals ruled that “applicant,” for the purposes of enforcing the ban of requiring spousal guarantees, includes a spouse-guarantor. Therefore, a spouse-guarantor can sue a creditor for violating the ECOA and Regulation B if the creditor requires the spouse to guarantee a loan.
C. Spouse-guarantor can also assert the violation as affirmative defense in a collection suit.
In addition, as held in the Sixth Circuit Court of Appeals, the guarantor can assert violations of the statute and Regulation B as an affirmative defense in an action to recover on the underlying debt. In the Sixth Circuit case, the wife of the applicant served as a guarantor of the loan. When the borrower defaulted on payment, the creditor brought an action against the wife for breach of guaranty. The wife asserted that her guaranty was unenforceable since the creditor violated the ECOA and Regulation B by requiring that she guarantee her husband’s loan. The Court held that the violation of ECOA and Regulation B can serve as an affirmative defense. The Sixth Circuit Court joined the First and Third Circuit in holding that ECOA violations can be raised as a defense of collection.
ECOA and Regulation B prohibit creditors from requiring a spouse to serve as a guarantor. If a creditor violates this rule, the spouse-guarantor can independently file a lawsuit for the violation. In addition, if the creditor brings a collection lawsuit against the spouse-guarantor, the spouse-guarantor can assert the ECOA and Regulation B violation as an affirmative defense. Thus, banks should be aware that they might not be able to collect the underlying debt from the spouse-guarantor, if they violate the ECOA or Regulation B.