Equal Credit Opportunity and the Requirement of a Spouse's Signature

• Jurisdiction: United States,Federal
• Citation: Vol. 2 No. 6 Pg. 12
• Pages: 12
• Publication year: 1989

Equal Credit Opportunity and the Requirement of a Spouse's Signature Vol. 2 No. 6 Pg. 12 Utah Bar Journal June, 1989

W. Clark Burt, J.

BACKGROUND AND POTENTIAL LIABILITY

The Equal Credit Opportunity Act (ECOA) and its supplement, Regulation B, which apply to all persons and entities who in the ordinary course of business regularly participate in the decision of whether or not to extend credit (15 U.S.C. Sect. 1691(a)), make it unlawful for a creditor, in any aspect of a credit transaction, to discriminate against an applicant on the basis of, among other things, sex or marital status. (15 U.S.C. Sect. 1691; 12 C.F.R. Sect 202.4.) Discrimination against an applicant need not involve an actual denial of credit; discrimination occurs any time a creditor treats an applicant less favorably than other applicants. (12 C.F.R. Sect. 202.2(n).) Although failing to expressly mention guarantors, the ECOA and Regulation B apply to applicants and guarantors alike. (Federal Reserve Board Letter, July 29, 1976, 5 C.C.H. Consumer Credit Guide H 42, 083.)

A creditor failing to comply with the ECOA or Regulation B (except for failure based on good faith conformity with any official rule, regulation, or interpretation by the Federal Reserve Board or official staff) is liable to the aggrieved party for actual damages, punitive damages not greater than $10, 000 (but limited for total recovery in a class action to the lesser of $500, 000 or 1 percent of creditor's net worth), and court costs and reasonable attorney's fees (if applicant is successful). (15 U.S.C. Sect. 1691; 12 C.F.R. Sect. 202.1.)

To prevent credit discrimination based on sex or marital status, Regulation B provides detailed guidelines regarding when a creditor can require the signature of an applicant's spouse or other person on a credit instrument. (12 C.F.R. Sect. 202.7(d).) The following procedure provides step-by-step guidelines for compliance with Regulation B 's provisions regarding the signature of an applicant's spouse or other person.

COMPLIANCE PROCEDURE

I. Establish Non-Discriminatory Standards of Creditworthiness. A creditor is free to establish its own standards of creditworthiness provided that they do not violate the ECOA and Regulation B. (Interpretive Staff Letter of the Comptroller of the Currency, September 14, 1977, 5 C.C.H. Consumer Credit Guide ¶ 42, 096.) Examples of standards that a creditor cannot establish are:

(1) A blanket policy of requiring execution of the obligation by all co-owners of property that has been pledged (for secured credit) or relied upon for creditworthiness (for unsecured credit); (2) a blanket policy of excluding jointly owned assets from consideration in evaluating applications. (Federal Reserve Board Letter, March 1, 1977, 5 C.C.H. Consumer Credit Guide K 42, 084.)

II Determine Key Variables in Application. The key variables for purposes of Regulation B are:

A. Type of Application. Single or joint.

B. Type of Credit Requested. Secured or unsecured.

W. CLARK BURT was born on March 23, 1943 in Salt Lake City, Utah and was admitted to the Utah State Bar in 1970; graduated from Brigham Young University, 1967, B.A. English; University of Utah, 1970, J.D. Judge Advocate, USMCR, 1970to 1973; 1971, U.S. Court of Military Appeals. Served as Vice-Chancellor, Moot Court Society, University of Utah School of Law, 1973.

Mr. Burt is a member of the Banking and Finance Section of the Utah State Bar, and a member of the Corporation, Banking and Business Law Section of the American Bar Association. He served on the Governor's Legislative Task Force on Electronic Funds Transfer and has served on several other legislative committees involved in drafting and amending the Uniform Consumer Credit Code.

Mr. Burt is a shareholder in the law firm of Callister, Duncan & Nebeker. He is presently the department head of the Banking, Creditors' Rights and...