Margo Brandenburg, Associate Member, University of Cincinnati Law Review
Last month marked the forty-fifth anniversary of the Equal Credit Opportunity Act (“ECOA”), passed by Congress in October 1974. The ECOA was designed to protect consumers from discrimination in the financial marketplace. As such, guarantors who feel they have been wrongfully discriminated against in a credit transaction have brought claims under the Act, hoping to find relief. These wronged guarantors have found the relief they were looking for in some jurisdictions, but not others. This jurisdictional discrepancy is attributed to the federal circuit split on whether a guarantor of a loan is deemed an “applicant” under the ECOA, and therefore, has standing to bring a claim. The Seventh, Eighth, and Eleventh Circuits found that guarantors should not be permitted to bring claims under the Act, while the Sixth Circuit thinks guarantors should be.
Part II discusses both the ECOA itself, and Federal Reserve Regulation B, which was designed to enforce the provisions of the ECOA. Part III looks at the reasoning of Federal Circuits that have addressed the issue. Part IV argues that while deference to Regulation B’s interpretation of “applicant” is the proper policy decision, Congress did not intend for guarantors to be included in the definition of applicants under the ECOA. Part V concludes that courts should not give deference to Regulation B, but rather use the definition of applicants provided in the ECOA.
A. The Equal Credit Opportunity Act
Congress enacted the ECOA in 1974 to reflect its stance that one’s marital status — along with race, gender, and other traits— is irrelevant to the determination of one’s credit. In effect, the 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 . . . sex or marital status,” among other personal traits. The purpose of this Act was to “eradicate credit discrimination waged against women, especially married women who creditors traditionally refused to consider for individual credit.”
Only “applicants” for credit may file lawsuits for ECOA violations. Creditors who fail to comply with the rules of the ECOA may be liable to these applicants for actual damages, punitive damages, and attorneys’ fees. Under the ECOA, the definition of an applicant is “any person who applies to a creditor directly for an extension, renewal, or continuation of credit, or applies to a creditor indirectly by use of an existing credit plan for an amount exceeding a previously established credit limit.” The ECOA’s definition of an “applicant” does not explicitly include guarantors of loans.
Cases discussing whether or not Regulation B should be given deference typically begin with a spouse who is required to guaranty a loan made by their partner for some type of transaction. The spouse then files an action against the creditor requiring their guaranty, arguing that the creditor discriminated against them on the basis of marital status, thus violating the ECOA. The question becomes whether these spouses have a right to even bring a claim under the ECOA due to the spouse’s status of a guarantor. To determine this, courts are tasked with determining if guarantor is included in the definition of an “applicant” under the ECOA.
B. Regulation B
Congress has mandated that the Consumer Financial Protection Bureau (“CFPB”), a bureau within the Federal Reserve system, take measures to carry out the purpose of the ECOA. This falls in line with CFPB’s mission, which is to protect consumers from unlawful and deceptive practices and take action against companies who act unlawfully. Federal Reserve Regulation B (“Regulation B”) resulted from Congress’s mandate tasking the CFPB to take action to enforce the Act. Like the ECOA, Regulation B’s stated purpose is “to promote the availability of credit to all creditworthy applicants without regard to . . . sex or marital status,” among other characteristics. Thus, Regulation B “prohibits creditor practices that discriminate on the basis of any of these factors.”
In contrast to the ECOA, Regulation B explicitly includes guarantors in its definition of an “applicant” for credit. According to Regulation B, “applicant” means “any person who requests or who has received an extension of credit from a creditor, and includes any person who is or may become contractually liable regarding an extension of credit. The definition further provides that an “applicant” includes “guarantors, sureties, endorsers, and similar parties” under Regulation B.
III. Applicable Legal Standard for Reviewing Agency Interpretation of a Statute
Which statutory definition of an “applicant” courts decide to follow is determinative on whether or not guarantors of a loan are able to sue. Thus, the question of which definition applies, the ECOA or the Regulation B definition, is an important one. Circuits are split on whether Regulation B’s definition of an applicant should be given deference. The Seventh, Eighth, and, most recently, the Eleventh Circuit says Regulation B should not be given deference. The Sixth Circuit says it should be.
Regardless, all courts faced with determining whether to give deference to an administrative statute look first at the Act itself under the two-part framework announced in Chevron U.S.A. Inc. v. Nat’l Res. Def Council Inc.. First, a court applies the “traditional tools of statutory construction,” and asks whether it can tell that Congress has spoken clearly on the issue. If the statute is deemed unambiguous, a court applies the statute according to its own terms, giving no deference to the administrative interpretation. However, if the court determines the statute itself is silent or ambiguous, it must decide whether the administrative interpretation is “reasonable or based on a permissible construction of the statute.” An administrative interpretation is deemed to be reasonable if it is “rational and consistent with the statute.” The circuit split has arose from courts disagreeing on whether the term “applicants” is ambiguous as used in the statute.
A. RL BB Acquisition, LLC v. Bridgemill Commons Dev. Group, LLC– The Sixth Circuit’s Interpretation
The Sixth Circuit conducted the Chevron test and first concluded that the statute is ambiguous regarding whether a guarantor is included in the definition of an “applicant.” The court reasoned that the words, “applies” and “credit,” as used in the statutory of definition of “applicant,” were substantively ambiguous.
With regard to the term “applies,” the court looked at the word’s official definition in the dictionary, defining the word “applies” as “[t]o make an approach to (a person) for information or aid.” While addressing the fact that a guarantor does not typically directly approach a creditor herself to ask for credit, the court still found that the statute was ambiguous and could be interpreted to include those who offer support in order for a third party to receive credit.
In interpreting “credit,” the Sixth Circuit explained that the language of the ECOA’s definition of credit indicates that an applicant and a debtor are not always the same person. Thus, the court found that it would be a reasonable assumption that a guarantor could be included in the definition of an applicant per the ECOA statute.
The Sixth Circuit then looked at the goals of the ECOA more broadly. Based on the fact that the Act is deemed to have “broad remedial goals” and it prohibits discrimination “with respect to any aspect of the credit transaction,” the court decided that the ECOA’s definition of the term “applicant” was written broad enough such that it could easily include a guarantor. As such, the court determined that the ECOA definition was sufficiently ambiguous under the first step of Chevron’s analysis.
Thus, the court moved on to the second part of the Chevron test. Because the court found that “at least one of the natural meanings of applicant includes guarantors,” it decided that Regulation B’s definition warranted deference. Notably, the court stated it was “not troubled by the prospect of guarantors being made whole after a creditor violates the law.”
B. The Majority’s Interpretation
The Seventh, Eighth, and Eleventh Circuits also begun the deference analysis with a form of the Chevron two-part test. However, contrary to the Sixth Circuit’s conclusion, these courts found that the ECOA’s definition of applicants was not at all ambiguous, and therefore the second part of the Chevron test did not need to be addressed. Specifically, the courts found that the ECOA’s definition gave a clear meaning of “applicants,” and unambiguously excluded guarantors from that definition.
The Eighth Circuit stated that a guarantor engages in very different activities, receives different benefits, and becomes liable for different things than a credit “applicant” typically does in a credit transaction. Additionally, with the ECOA’s goal of providing equal access to credit in mind, the court discussed that guarantors who claim they have been discriminated against by being included in a loan are not the group that writers of the Act intended to protect. Quite the opposite, these guarantors have been improperly included into the credit process, rather than being denied access to credit. Because the Act was not created to protect guarantors from being wrongfully included in the credit process, the court determined the purpose of the ECOA supported its interpretation.
Additionally, the Seventh Circuit addressed this issue and came to the same conclusion as the Eighth. In its analysis, the court noted that allowing guarantors to bring ECOA violations would “open vistas of liability that the Congress that enacted the Act would have been unlikely to accept.” Even though typical ECOA violation lawsuits typically involve a modest amount of damages, if a person’s guaranty of a loan can be invalidated due to an ECOA violation, the creditor involved “may lose their entire debt.”
The most recent circuit court decision addressing this issue, Regions Bank v. Legal Outsource PA, went into a lengthy discussion of the provisions of the Act itself, detailing why the ECOA’s “applicant” definition does not include guarantors. The Eleventh Circuit’s discussion included that the Act uses the term applicant in many of its provisions to only include one, single, “first-party” applicant. What’s more, the court noted that the Act itself distinguishes between a first-party applicant and a third-party guarantor. The court expressed its discomfort in concluding that a third-party guarantor, who offers a promise in support of a loan, submits an application for credit in any way. This evidence, along with other indicators, was telling enough to convince the Eleventh Circuit that the Act’s definition of “applicant” purposefully did not include guarantors.
To further expand on the issue, the Eleventh Circuit provided the example of a high school senior applying to her parent’s alma mater college. Even if the student’s parents tell the college they will donate a large sum of money to the school provided they accept their daughter’s application for admittance, the parents are not considered “applicants” themselves, even though they supported their daughter in gaining admission. Similarly, a guarantor who supported an applicant in gaining credit is not deemed to be an “applicant” for credit themselves. Thus, the court determined that guarantors should not have standing to sue under the Act.
Public policy favors deferring to Regulation B’s definition of an applicant due to the “overriding national policy against discrimination that underlies the [Act].” The Act’s history centers around providing a means for individuals who were the subject of discrimination to gain credit and get the relief they deserve. When a creditor violates the law by discriminating against anyone in a credit transaction, the creditor should be held responsible for their actions. Guarantors should be able to hold these discriminatory creditors responsible, and be made whole again, as should any other individual involved in the credit transaction. The Sixth Circuit weighed this public policy consideration heavily in its decision to defer to Regulation B’s definition of an applicant in RL BB Acquisition.
Despite the ECOA’s lofty goals, “[no] legislation pursues its purposes at all costs.” While public policy considerations weigh in favor of deferring to Regulation B’s definition of applicants, this was not Congress’s intention when it created the ECOA. Congress created the right to sue under the ECOA to extend only to actual, first-party applicants. This is evidenced by the fact the Act was formulated by congress to protect those who were denied access to credit by discriminatory creditors. The Act does not contemplate guarantors who were included in the credit process against their wishes, even if they were included in a discriminatory manner.
To find the Act ambiguous, and therefore, defer to Regulation B’s interpretation, would allow for creditor’s liability in areas that were not envisioned by Congress when the Act was created. It is unambiguous that Congress’s definition of applicants did not allude to a guarantor of a loan, and other provisions within the ECOA refer to an applicant as one, single person. Congress meant to not include guarantors in the definition of applicants. Due to the unambiguity in ECOA’s definition, there should be no question of what definition should be used. Given to the weighty factors favoring the statutory definition, the ECOA’s definition of “applicants” should be used when determining who has standing to sue under the Act.
Moving forward, courts should defer to the majority of circuit’s interpretation of the ECOA provisions. Due to the sound arguments of the Seventh, Eighth, and Eleventh circuits, the circuit split regarding the ECOA definition should be resolved by courts using the definition of an “applicant” that is provided in the ECOA itself, rather than showing any deference to Regulation B. While it may be sound public policy to include guarantors in the definition of applicants, to do so would be against the intentions of Congress when the Act was created. Congress’s silence on a subject is not a useful guide to defer to an administrative definition. If Congress decides that it is proper to give these wronged guarantors standing to sue under the ECOA, legislation should be enacted to reflect this change in the definition of an applicant under the ECOA. For now, though, wronged guarantors of loans do not have standing to sue discriminatory creditors under the ECOA, because, by definition, they are not “applicants” for credit.
Brian Kreiswirth & Anna-Marie Tabor, What you need to know about the Equal Credit Opportunity Act and how it can help you: Why it was passed and what it is, Consumer Financial Protection Bureau, (Oct. 31, 2016), https://www.consumerfinance.gov/about-us/blog/what-you-need-know-about-equal-credit-opportunity-act-and-how-it-can-help-you-why-it-was-passed-and-what-it/.
See generally RL BB Acquisition, LLC v. Bridgemill Commons Dev. Group, LLC, 754 F.3d 380 (6th Cir. 2014); Hawkins v. Cmty. Bank of Raymore, 761 F.3d 937 (8th Cir. 2014); Regions Bank v. Legal Outsource PA, 2019 U.S. App. LEXIS 26006 (11th Cir. 2019); Moran Foods v. Mid-Atlantic Market Development Co., LLC, 476 F.3d 436 (7th Cir. 2007).
RL BB Acquisition, LLC v. Bridgemill Commons Dev. Group, LLC, 754 F.3d 380, 383 (6th Cir. 2014).
Equal Credit Opportunity Act, 15 U.S.C. § 1691 (2019).
Id. (quoting Mays v. Buckeye Rural Elec. Coop., 277 F.3d 873, 876 (6th Cir. 2002)).
15 U.S.C. § 1691(e).
15 U.S.C. § 1691(a)(b).
RL BB Acquisition, LLC, 754 F.3d at 383.
E.g., Hawkins v. Cmty. Bank of Raymore, 761 F.3d 937 (8th Cir. 2014); Regions Bank v. Legal Outsource PA, 936 F.3d 1184 (11th Cir. 2019); Moran Foods v. Mid-Atlantic Market Development Co., LLC, 476 F.3d 436 (7th Cir. 2007); Regions Bank v. Legal Outsource PA, 936 F.3d 1184 (11th Cir. 2019).
Equal Credit Opportunity Act, 15 U.S.C. § 1691(b)(a) (2019).
The Bureau, Consumer Financial Protection Bureau, https://www.consumerfinance.gov/about-us/the-bureau/.
RL BB Acquisition, LLC, 754 F.3d at 383.
12 C.F.R. § 202.1.
12 C.F.R. § 202.2(e).
467 U.S. 837 (1984). See Regions Bank v. Legal Outsource PA, 936 F.3d 1184 (11th Cir. 2019).
Regions Bank v. Legal Outsource PA, 936 F.3d 1184 (11th Cir. 2019) (quoting Arevato v. United States AG, 659 F.3d 1303, 1307 (11th Cir. 2017).
754 F.3d 380, 384 (6th Cir. 2014).
RL BB Acquisition, LLC, 754 F.3d at 384. (discussing that the ECOA defines credit as “the right granted by a creditor to a debtor to defer payment of debt or to incur debts and defer its payment or to purchase property or services and defer payment therefor.”)
Id. [internal quotations omitted].
RL BB Acquisition, LLC, 754 F.3d at 384.
Hawkins v. Cmty. Bank of Raymore, 761 F.3d 937, 941 (8th Cir. 2014); Regions Bank v. Legal Outsource PA, 2019 U.S. App. LEXIS 26006, *9 (11th Cir. 2019); Moran Foods v. Mid-Atlantic Market Development Co., LLC, 476 F.3d 436, 441 (7th Cir. 2007).
Hawkins v. Cmty. Bank of Raymore, 761 F.3d 937, 941 (8th Cir. 2014); Regions Bank v. Legal Outsource PA, 2019 U.S. App. LEXIS 26006, *27 (11th Cir. 2019); Moran Foods v. Mid-Atlantic Market Development Co., LLC, 476 F.3d 436, 441 (7th Cir. 2007).
Hawkins v. Cmty. Bank of Raymore, 761 F.3d 937, 942 (8th Cir. 2014);
Moran Foods v. Mid-Atlantic Market Development Co., LLC, 476 F.3d 436, 441 (7th Cir. 2007).
2019 U.S. App. LEXIS 26006 (11th Cir. 2019).
Regions Bank v. Legal Outsource PA, 2019 U.S. App. LEXIS 26006, *19-20 (11th Cir. 2019).
Id.at *20 (quoting Bros. v. First Leasing, 724 F.2d 789, 793 (9th Cir. 1984)).
754 F.3d at 384.
Regions Bank v. Legal Outsource PA, 2019 U.S. App. LEXIS 26006, *27 (11th Cir. 2019) (quoting Pension Benefit Guar. Corp. v. LTV Corp., 496 U.S. 633, 646-47 (1990)).
Id. (quoting Zuber v. Allen, 396 U.S. 168, 185 (1969)).