A defaulting spouse may find a powerful and effective defense to a creditor's entry of judgment in the Equal Credit Opportunity Act ("ECOA" or "the Act") and the accompanying federal regulation ("Regulation B"). The defense arises when a married applicant enters a financial institution seeking a loan, and even though the applicant is unquestionably creditworthy, the creditor requires that the applicant's spouse co-sign the loan as a guaranteeing spouse. The financial institution has just violated the ECOA by discriminating against the applicant on account of the applicant's marital status. If the original applicant later defaults on the loan, the creditor will then pursue a judgment against the guaranteeing spouse. Will the guaranteeing spouse be held liable for the underlying debt notwithstanding the fact that the additional signature was obtained illegally? Courts facing this question have struggled to come to a definitive answer as to whether a guaranteeing spouse may apply the ECOA as a defense to contractual liability.
Congress passed the ECOA in 19743 to prohibit credit discrimination based on gender or marital status. Congress's goals were to protect married women from discriminatory credit practices and to provide all applicants the opportunity to establish individual credit. The provision was expanded in 19767 to prohibit any type of credit discrimination. Even though the original purpose of the Act was to prohibit a creditor from discriminating against women by requiring wives to obtain their husbands' co-signatures, the literal language of the Act has been used in recent years by both husbands and wives in an attempt to declare underlying notes or guaranties void and unenforceable upon an ECOA violation.
Andrea M. Farley,
The Spousal Defense--A Ploy to Escape Payment or Simple Application of the Equal Credit Opportunity Act?,
49 Vanderbilt Law Review
Available at: https://scholarship.law.vanderbilt.edu/vlr/vol49/iss5/4