About eighteen months ago, we wrote in this space about the Equal Credit Opportunity Act (ECOA) and its application to requiring spousal guaranties as part of extending credit to customers. Recently, the U.S. Supreme Court agreed to hear a case to determine whether the ECOA applies at all to guarantors. Under the terms of the statute, the law applies only to “applicants” for credit. In administrative regulations, the agency responsible for enforcing ECOA determined that applicants include guarantors, an interpretation that was previously upheld by the Sixth Circuit Court of Appeals. More recently, however, the Eighth Circuit Court of Appeals determined that the ECOA is clear that its protection extends only to those who apply for credit directly to a creditor. In the Eighth Circuit’s view, a guarantor, while it desires for the creditor to extend credit to a particular borrower, is not itself requesting credit or otherwise “involved in applying for credit.”

Faced with this split in authority, the Supreme Court agreed to review (technically, it granted certiorari) the Eighth Circuit decision in its term beginning in October, 2015. The Court’s decision will, of course, settle the issue nationwide. Until then, creditors should keep in mind our previous summary of spousal guaranties:

If an applicant’s spouse has no affiliation with the business, a creditor may require his or her signature only when (1) the credit is secured with property that is held in both spouses’ names or (2) where the creditor is relying on a piece of property to establish creditworthiness that is held in both parties’ names. This makes sense as otherwise a creditor would not have a valid lien or be able to pursue the property that was pledged to establish the credit in the first place.

In all other situations a creditor may request that a spouse sign the guaranty, but the creditor is not allowed to require the spouse’s signature as a condition of extending credit. Of course, a creditor may request that an unqualified applicant find an additional gurantor to establish creditworthiness, but the applicant is under no obligation to use the spouse as the guarantor. The issue is that an otherwise creditworthy applicant may not be denied because his or her spouse refuses to guarantee the obligation.

We will continue to update on the progress of this important case.