On August 28, 2019, the Eleventh Circuit Court of Appeals published its opinion in Regions Bank v. Legal Outsource PA regarding whether a guarantor is considered an “applicant” under the Equal Credit Opportunity Act (ECOA). The Eleventh Circuit handles federal appeals arising from cases tried in Alabama, Georgia and Florida.
Legal Outsource PA, a law firm wholly owned by Charles Phoenix, defaulted on a Regions Bank loan that triggered the default of a loan and mortgage Regions issued to Periwinkle Partners, LLC, an entity wholly owned by Phoenix’s wife, Lisa Phoenix.
In the Regions Bank actions to enforce its rights under the loan and mortgage, Lisa Phoenix filed a counterclaim that Regions discriminated against her and Charles based on their marital status by demanding Charles Phoenix and Legal Outsource guarantee the Periwinkle loan.
The district court ruled Lisa Phoenix’s counterclaims failed because she lacked standing, as a guarantor is not an “applicant” under the ECOA entitled to anti-discrimination protections. The Eleventh Circuit affirmed this decision.
Phoenix argued Regulation B § 202.2(e), which implements the ECOA, provides the term “applicant” includes guarantors, and §202.7(d)(1) prohibits the signature of a spouse, other than a joint applicant, on any credit instrument if the applicant independently qualified as creditworthy.
The appeals court reasoned the “applicant” under the ECOA is defined as “any person who applies to a creditor directly for…credit, or applies to a creditor indirectly by use of an existing credit plan for an amount exceeding a previously established credit limit.” The court ruled it did not need to defer to the Regulation B definition because the statute’s definition is unambiguous.
This ruling differs from the Sixth Circuit Court of Appeals decision in RL BB Acquisition, LLC v. Bridgemill Commons Dev. Grp, which held the definition of “applicant” under the ECOA was ambiguous and, therefore, deferred to the Consumer Financial Protection Bureau’s interpretation under Regulation B that guarantors are “applicants.” The Sixth Circuit handles federal appeals arising from cases tried in Kentucky, Michigan, Ohio and Tennessee.
This case could go to the U.S. Supreme Court. Why? Not only are the appeals courts split, this issue already was tried before the Supreme Court. On March 22, 2016, the Court upheld the Eight Circuit Court of Appeals decision in Hawkins v. Community Bank of Raymore that spousal guarantors could not bring a discrimination claim against creditors under the ECOA because the guarantors did not qualify as “applicants.”
However, the Supreme Court’s decision was 4-4, which means the issue is only affirmed and precedential in the Eighth Circuit. The Eighth Circuit handles federal appeals arising from cases tried in Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota and South Dakota.
While we can speculate as to how a full court would rule, it remains to be seen whether a writ of certiorari will be filed to appeal this Eleventh Circuit decision.
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