The U.S. Supreme Court recently split 4-4 in a case involving whether or not the spousal guaranty rule under Regulation B is enforceable, for now making the question of enforceability dependent upon where the dispute arises.
In Hawkins v. Community Bank of Raymore, Valerie Hawkins and Janice Patterson brought suit against Community Bank of Raymore, alleging that the bank forced them to sign guaranties on a commercial loan made to their husbands鈥� company simply because they were married to the two men who jointly owned the company. Neither Hawkins nor Patterson had an ownership interest in the company. The bank allegedly refused to extend credit to the husbands without a spousal guaranty.
Regulation B prohibits the requirement for anyone to guaranty a loan just because they are married to the guarantor. This prohibition was applied because guarantors as applicants are protected under the Equal Credit Opportunity Act (ECOA), which prohibits discrimination 鈥渁gainst any applicant, with respect to any aspect of a credit transaction… on the basis of race, color, religion, national origin, sex or聽marital status, or age.鈥�
The case came before the U.S. Supreme Court via the 8th Circuit, which found that Regulation B does not apply to guaranties, noting that 鈥渢he plain language of the ECOA unmistakably provides that a person is an applicant only if she requests credit. But a person does not, by executing a guaranty, request credit.鈥�
The 8th Circuit鈥檚 ruling is in conflict with rulings on similar cases from the 4th and 6th Circuits, which found ECOA to be ambiguous as to the qualifications of an 鈥渁pplicant鈥� and making Regulation B鈥檚 extension to guarantors permissible.
The split decision means that the spousal guaranty rule remains in place outside the 8th Circuit. However, the ECOA prohibition against lenders requiring a spousal guaranty if the applicant otherwise meets a lender鈥檚 requirements for creditworthiness still applies in all jurisdictions.
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