The United States Supreme Court recently affirmed an opinion from the United States Court of Appeals for the Eighth Circuit affirming the dismissal of the claim by two spouses that a lender’s requirement that they sign guarantees violated the Equal Credit Opportunity Act (“ECOA”), but the Court’s 4-4 decision has limited applicability.  See Hawkins v. Cmty. Bank of Raymore, 2016 WL 1092416 (U.S. Mar. 22, 2016).  In the case, a lender issued loans to a limited liability company and obtained personal guarantees from the company’s two members, as well as each member’s respective spouse.  After the company defaulted, the two spouses filed an action against the lender, claiming that their guarantees were required solely because of their marital status, in violation of the ECOA provision that states it is “unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction . . . on the basis of . . . marital status.” 15 U.S.C. § 1691(a).  In support of their argument, the guarantors referenced the Federal Reserve Bank’s regulation that defined “applicant” as including guarantors.  12 C.F.R. § 202.2.  The United States District Court for the Western District of Missouri found that a guarantor is not an “applicant” under the ECOA, however, and granted the lender’s motion for summary judgment. 

On appeal, the Eighth Circuit affirmed the lower court’s decision.  See Hawkins v. Cmty. Bank of Raymore, 761 F.3d 937 (8th Cir. 2014).  Specifically, it held that the ECOA defines an “applicant” as “any person who applies to a creditor directly for an extension, renewal, or continuation of credit, or applies to a creditor indirectly by use of an existing credit plan for an amount exceeding a previously established credit limit.”  15 U.S.C. § 1691a(b).  The court found that a guarantor does not meet this definition and, because the ECOA’s language was unambiguous, the court did not owe any deference to the Federal Reserve’s interpretation that a guarantor was an “applicant” under the act and it rejected the guarantors’ argument to the contrary.  See Chevron U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984).  This decision was in conflict with a Sixth Circuit decision that the ECOA was ambiguous and that the Federal Reserve’s interpretation was owed deference.  See RL BB Acquisition, LLC v. Bridgemill Commons Dev. Grp., LLC, 754 F.3d 380 (6th Cir. 2014) (“[a] guarantor may therefore seek relief for violations of the spouse-guarantor rule.”).

The Supreme Court affirmed the Eighth Circuit’s decision, simply stating “[t]he judgment is affirmed by an equally divided Court.”  Therefore, though the Eighth Circuit’s opinion was affirmed, the decision does not constitute a binding nationwide precedent.  This decision allows conflicting opinions from other Circuits to remain good law.  Though the Third Circuit has not addressed the ECOA under Chevron analysis, it has previously found guarantors to be applicants based on the regulatory language.  See Silverman v. Eastrich Multiple Inv’r Fund, L.P., 51 F.3d 28, 31 (3d Cir. 1995).

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com.