The wife of the owner of a development company who was sued in Champion Bank v. Regional Development, LLC, 4:08 CV 1807 CDP (May 13, 2009 E.D.Mo.) said she was asked (forced?) by the company’s lender to guarantee a note issued for company in violation of the Equal Credit Opportunity Act (ECOA). ECOA makes it unlawful for any creditor to discriminate against any applicant with respect to any aspect of a credit transaction on the basis of the applicant’s marital status. 15 U.S.C. § 1691. In support of this argument, she pointed to regulations issued by the Federal Reserve Board that interpreted the term Applicant to include guarantors, sureties, endorsers, and similar parties. 12 C.F.R. § 202.2(e). The District Court refused to accept the FRB’s interpretation relying on a Seventh Circuit opinion, _Moran Foods, Inc. v. Mid-Atlantic Market Devel. Co._, 476 F.3d 436 (7th Cir. 2007). Moran held that the Federal Reserve’s interpretation that the term applicant includes guarantors is unreasonable and inconsistent with the unambiguous text of ECOA. A guarantor is not an applicant because a guarantor does not, by definition, apply for anything. Moreover, the Seventh Circuit said, a guarantor cannot be denied credit for which he or she did not apply, and ‘thus it is difficult to conceive how a guarantor can claim to have been discriminated against.’ _Id_. The District Court agreed and said that extending the protections of ECOA to someone in the spouse’s position would expand ECOA beyond its intended purpose and lead to circular and illogical results. She is not able to show discrimination by virtue of the fact that she chose to guarantee her husband’s business loan. She was never denied anything, and there is no logical remedy that would make her whole. But the very thing she is protesting is that she has been made a guarantor in the first place. [She] cannot claim that she has rights under a statute while simultaneously asserting that she should not be a member of the class of people the statute is designed to protect.
Author
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Solomon has nearly two decades of experience representing financial institutions, real estate investors and privately owned business entities. Solomon concentrates his practice in the areas of banking, consumer financial services, real estate, business law and related litigation and appellate practice.
