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ECOA Analysis

By Attorney Shalanda N. Franklin

Having credit is essential for doing business; it provides funds to grow a business and relief during difficult times. However, the receipt of credit often comes with conditions, including personal risk for the business owner and their relatives. Federal laws prohibit a creditor from imposing a condition that a spouse sign a credit agreement solely because of the spouse’s marriage to the loan applicant. Previously, some creditors refused to extend credit to women who independently qualified for a loan unless their husbands agreed to the debt. With certain exceptions, now, it can be illegal to require a spouse’s signature on a loan when the applicant independently meets the creditor’s creditworthiness standards. 

The United States Supreme Court was asked to determine if federal laws protect a spouse who signs a guaranty for a loan made to the other spouse’s business from discrimination on the basis of marital status. A guaranty is separate from the credit transaction and involves a promise to be responsible to pay another person’s debt if the person defaults.  The husband owned an interest in a business which applied for a loan; the wife did not. The wife argued that the lender required her to sign a guaranty for the loan solely because she was married to her husband, which violated federal law.

The lower court concluded that federal law did not prohibit the lender from requiring the spousal guaranty. The Supreme Court was equally divided 4-4, and thus did not agree with or reject the lower court’s analysis. As a result, a conflict remains among lower courts regarding whether a creditor may require the spouse of a creditworthy applicant to be a guarantor. The answer will continue to vary from court to court.   

If you suspect that discrimination on the basis of marital status has occurred during a credit transaction please contact your attorney for more information. 

This article is meant to bring awareness to this topic and does not serve as legal advice. For more information on this and other topics, please visit our website


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