The year was 1974 and, on the heels of the civil rights movement, was a time when the country maintained its heightened awareness of equality and discrimination. This was the year that the Equal Credit Opportunity Act (ECOA) became law as part of the federal Consumer Credit Protection Act. Its purpose - to prohibit discrimination based on sex, marital status, race, ethnicity, or age in lending practices.[1] With respect to sex and marital status, the “purpose of the ECOA [was] to eradicate credit discrimination waged against women, especially married women whom creditors traditionally refused to consider for individual credit.[2] That’s because certain types of discriminatory practices prevented women from establishing their own credit history and generally re-enforced economic dependence on their husbands. The ECOA, in part, sought to put an end to these practices and promote economic independence for women. This was especially important in a time when consumer credit began to grow rapidly in the United States. To interpret and implement the ECOA, legislators gave the Federal Reserve Board the authority to oversee the necessary regulations. In response, the Federal Reserve Board issued Regulation B which outlines the rules that creditors must comply with when obtaining and processing credit information. As stated in Regulation B, its purpose is to promote the availability of credit to all creditworthy applicants and it applies to both consumer- and business-purpose extensions of credit.
 
Today, the ECOA is still alive and well and, more importantly, still prohibits discrimination based on sex and marital status in lending practices. Specifically, the statute and its corresponding regulations prohibit a creditor from requiring the signature of an applicant’s spouse if the applicant qualifies for a loan under the creditor’s standards.[3] However, in today’s world, the use and application of the ECOA provisions prohibiting discrimination based on sex and marital status seem to be growing further and further from the ECOA’s original purpose. In particular, there are more and more cases today where it is the wife who claims a violation of the ECOA because she was required to sign a guaranty in order for her husband to receive credit instead of the other way around. For example, in a recent case, PNC Bank, National Association v. Miller[4], a Florida district court found that the bank violated ECOA by requiring the wife of the borrower-husband to sign a personal guaranty despite the fact that the husband was creditworthy under PNC and/or its predecessor’s standards. In that case, borrower eventually defaulted on loans issued by PNC Bank’s predecessor and PNC Bank sued the borrower and his wife for enforcement of the promissory note and the wife’s personal guaranty. In response to PNC Bank’s complaint, the wife asserted that the guaranty agreement was obtained in violation of the ECOA. Since the statute was enacted to prevent discrimination against women, this case, along with many like it, seem to directly contravene the social injustice which the ECOA sought to eradicate when it was enacted.
 
Equally curious about these types of cases (and disconcerting for lenders) is the fact more and more people, men and women, are using the ECOA’s provisions relating to sex and marital status as a shield in an attempt to avoid liability under spousal guaranty agreements. As many lenders know, there have been a number of cases where the guarantors of loans assert violations of the ECOA by a lender as an affirmative defense to the enforcement of guaranty agreements. Further, these claims also argue that such violations result in voiding the subject guaranty agreement(s) altogether. This certainly seems to contravene legislators’ original intentions since the ECOA and Regulation B explicitly provide for statutory remedies which do not include voiding guaranty agreements. Specifically, under the ECOA and Regulation B, the statutory remedy for an ECOA violation is actual and punitive monetary damages. The statute provides that a violation may result in civil liability up to $10,000 for individual actions or up to $500,000 for class actions. The statue further provides that any action for these damages must be brought within the applicable statute of limitations - two years for a guaranty executed before July 21, 2010 and five years for a guaranty executed on or after July 21, 2010.
 
Despite the fact that the statute defines the consequences of an ECOA violation and provides a statute of limitations, several courts have found that these violations may in fact be used as an affirmative defense to the enforcement of a personal guaranty and, when raised as such, the statute of limitations will not apply. Late last year, the North Carolina Court of Appeals affirmed a trial court ruling that a guarantor-spouse may assert a violation of the ECOA as an affirmative defense in an action by the lender to recover under a guaranty agreement.[5] In that case, the lender sued its borrowers, two limited liability companies, and the guarantors after the loans went into default. In response to the lawsuit, the guarantor-spouses argued that their guaranty agreements violated the ECOA because they were not members of the LLCs and were not involved in the businesses. The case eventually went to trial and the lender lost. Not only did this Court find that the ECOA may be raised as an affirmative defense and that the statute of limitations would not apply, it also found that claims under the ECOA may not be waived. The lender in that case had entered into a forbearance agreement with the borrowers at one point which contained a blanket waiver and release of all claims. The Court found since the guaranty agreements were void due to the ECOA violation, the waiver in the forbearance agreement was void as well.
 
As these cases become a common defense to enforcement of guaranty agreements, the questions linger – are the ECOA provisions relating to sex and marital status outdated? Do they need to be amended or removed altogether? Many things have changed since ECOA was first enacted in 1974. For starters, since 1950, the rate of adult women working or looking for work rose from 33 percent to 61 percent while men’s labor force has declined steadily since the fifties.[6] Additionally, women’s earnings have also risen and in fact, the proportion of wives earning more than their husbands has also grown from 18 percent in 1988 to 27 percent in 2008.[7] The types of jobs working women perform have also changed with a larger share of women now working in management, professional, and related occupations.[8] These statistics may be due in part to women’s higher educational attainment,[9] but regardless of the reason, more women are in the workforce today and more and more women are taking higher powered positions with higher pay. There has certainly been a significant change in social norms since the ECOA first became law.

Since the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the Consumer Financial Protection Bureau (CFPB) has taken the Federal Reserve Board’s place and is now charged with prescribing and implementing ECOA through Regulation B. Given the change in social norms, the CFPB and legislators should take a hard look at the original purpose of the ECOA provisions relating to sex and marital status in the context of today’s lending practices. If the CFPB and legislators find that women are still a protected class, the CFPB should, at minimum consider amending Regulation B to clarify whether violations in obtaining spousal guaranty agreements may be used as an affirmative defense to the enforcement of such guaranties. Additionally, the CFPB should also clarify whether there is in fact an applicable statute of limitation when the ECOA is used as an affirmative defense and whether claims under the ECOA can be waived. Without these clarifications, the courts are left to interpret the proper application of the ECOA and consequences of an ECOA violation which, at this point, seems to be at odds with its original purpose. Until then, it is important for lenders to carefully review their credit application and administration processes to insure they comply with the ECOA and Regulation B. This includes reviewing company policies, any written manuals, training procedures for lending and credit officers, and processes for preserving complete records and documentation of credit analysis preformed when obtaining and processing credit.