Divided Supreme Court Affirms Dismissal of “Spousal Guarantor” ECOA Discrimination Lawsuit

By Andrew C. Glass, Roger L. Smerage and Olivia Kelman

On March 22, 2016, the United States Supreme Court issued its first 4-4 split decision since the passing of Justice Antonin Scalia. In Hawkins v. Community Bank of Raymore, No. 14-520 (U.S. Mar. 22, 2016), the Court reviewed whether the Federal Reserve Board (“FRB”) exceeded its authority when it amended Regulation B, implementing the Equal Credit Opportunity Act (“ECOA”), to cover loan “guarantors” as loan “applicants.” In a per curiam opinion, the Court affirmed the determination of the United States Court of Appeals for the Eighth Circuit that (1) the plain language of ECOA excludes loan guarantors from the definition of loan applicants authorized to bring an antidiscrimination suit under the statute, and thus (2) the FRB’s conflicting amendment was not entitled to deference to be afforded to regulations that interpret silent or ambiguous statutory provisions. Yet, the Court’s even split means that Hawkins will be binding precedent only in the Eighth Circuit and not nationwide.

The case arose out of a series of loans made between 2005 and 2008 by Community Bank of Raymore (“Community”) to a limited liability company (the “LLC”) for funding the development of a residential subdivision. The LLC’s members and their spouses guaranteed the loans, and when the loans went into default, Community sought to collect from the guarantors. Claiming that Community required them to serve as guarantors because of their marital status, the spousal loan guarantors brought suit alleging a violation of ECOA, which protects credit “applicants” from, among other things, discrimination on the basis of marital status.

The district court disagreed that loan guarantors are credit “applicants” and dismissed the suit. The Eighth Circuit affirmed the dismissal, determining that “the text of the ECOA clearly provides that a person does not qualify as an applicant under the statute solely by virtue of executing a guaranty to secure the debt of another.”

With the Supreme Court’s per curiam affirmance, the Eighth Circuit’s decision remains binding law in that circuit. While the Court’s decision is not binding in other circuits, it may cast doubt on the FRB’s interpretation of the term “applicants” as protecting loan guarantors from discrimination under ECOA.