In Hawkins v. Community Bank of Raymore, Case No. 13-3065, the Eighth Circuit held that guarantors were not “applicants” under the plain language of ECOA. Because the language of ECOA was clear, the Eighth Circuit concluded that it was not bound by the Board of Governors’ definition in 12 C.F.R. § 202.2(e). The factual genesis for Hawkins mirrors countless other commercial loan cases that courts have encountered in recent years. Valerie Hawkins and Janice Patterson were married to gentlemen who owned a real estate development company, PHC Development, LLC. PHC obtained a series of loans from Community Bank of Raymore to develop a residential subdivision. The loans totaled over $2,000,000. As part of the loan, Valerie and Janice, along with their husbands, were required to sign personal guaranties in favor of Community Bank promising to repay the loans to PHC. The loans were modified several times and during each modification Valerie and Janice reaffirmed their guaranties. In April 2012 PHC defaulted under the loans and Community Bank took steps to enforce the loan agreements including the guaranties. Valerie and Janice proceeded to file their own action against Community Bank alleging that the guaranties were signed in violation of ECOA and were therefore void and unenforceable. According to the spouses, the only reason they were required to sign the guaranties was because they were married to the owners of PHC, thus violating ECOA. On May 16, 2013, the U.S. District Court for the Western District of Missouri granted summary judgment in favor of Community Bank and dismissed the spouses’ ECOA claims. The district court held that based on the reasoning of cases like Citizens Bank and Champions Bank, the regulatory definition of “applicant” in 12 C.F.R. § 202 was not entitled to deference because it was contrary to the clear language of ECOA. Valerie and Janice appealed the decision to the Eighth Circuit.
On appeal, the Eighth Circuit affirmed the district court’s summary judgment opinion finding that as guarantors Valerie and Janice did not fall within ECOA’s definition of “applicant”. In rejecting the Board of Governors’ definition of applicant, the Eighth Circuit engaged in the two-step analysis under Chevron, but did not get past step one because it found Congress’s definition of “applicant” in ECOA was clear. The Eighth Circuit echoed the reasoning of the district courts in Missouri by finding that a guarantor, by definition, does not request credit and under ECOA an “applicant” is a person that requests credit. Because the Eighth Circuit found the Congressional language in ECOA to be clear and precise, the court did not defer to the Board of Governor’s interpretation of “applicant” under Reg. B. The Eighth Circuit the elaborated on the policy reasons supporting the court’s decision as follows:
These policies [behind ECOA]focus on ensuring fair access to credit by preventing lenders from excluding borrowers from the credit market based on the borrowers’ marital status. But the considerations are different in the case of a guarantor. By requesting the execution of a guaranty, a lender does not thereby exclude the guarantor from the lending process or deny the guarantor access to credit. Here, Hawkins and Patterson do not claim that they were excluded from the lending process due to their marital status. Indeed, they complain that they were improperly included in that process by being required to execute guaranties. Thus, we believe that the purposes and policies of the ECOA buttress our interpretation of the statute’s plain meaning.
Hawkins, slip op. at p. 7 (emphasis in original). The Eighth Circuit further noted an important issue related to spousal guaranties in Missouri, specifically the fact that under Missouri law property of husband and wife is owned as tenants by the entirety. According to the court, the request for Valerie and Janice to execute guaranties in order to reach marital assets would have been “sound commercial practice unrelated to any stereotypical view of a wife’s role.” Id. at p. 7-8 n. 6 (quoting Moran, 476 F.3d at 442). Based on this analysis, the Eighth Circuit concluded that Valerie and Janice were not “applicants” under ECOA and affirmed the district court’s summary judgment order.