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Eleventh Circuit Holds that a Guarantor Lacks Standing Under the Equal Credit Opportunity Act

Shalia M. Sakona

Late last month, the U.S. Court of Appeals for the Eleventh Circuit held in Regions Bank v. Legal Outsource PA, No. 17-11736, 2019 WL 4051703 (11th Cir. Aug 28, 2019), that a loan guarantor does not qualify as an “applicant” for purposes of asserting claims under the Equal Credit Opportunity Act, 15 USC § 1691.

The Equal Credit Opportunity Act (“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 “race, color, religion, national origin, sex or marital status or age[.]” In Regions Bank, a husband and wife claimed that Regions discriminated against them on the basis of their marital status, by forcing each member of the couple and the husband’s business to guarantee a loan made to the wife’s business. Regions Bank, 2019 WL 4051703, at *1.

Charles Phoenix owned Legal Outsource, PA, a law firm to which Regions Bank extended a $450,000 line of credit, renewed annually or semiannually. Id. Lisa Phoenix indirectly wholly owned Periwinkle Partners, LLC, to which Regions made a $1.7 million mortgage loan for purchase of a shopping center. Id. Mr. and Mrs. Phoenix and Legal Outsource all guaranteed the Periwinkle loan. Id. The terms of the Periwinkle loan dictated that a default by any of the guarantors on any loans made by Regions qualified as a default of the Periwinkle loan. Id.

In 2013, Regions declared events of default as to both loans and accelerated them, demanding full and immediate payment, which was not made. Id. Regions sued both borrowers and guarantors for breach of the promissory notes and guaranties, and for foreclosure of the Periwinkle mortgage. Id. at *2. The defendants counterclaimed, inter alia, for alleged violations of ECOA by Regions.

At the dismissal phase, the U.S. District Court for the Middle District of Florida held that Legal Outsource and Mr. Phoenix lacked statutory standing to assert ECOA violations because they were guarantors, not applicants, of the Periwinkle loan. Regions Bank, 2019 WL 4051703, at *2. On summary judgment, the District Court granted summary judgment in Regions’ favor as to all of the defendants’ counterclaims. It held that like her husband and his law firm, Mrs. Phoenix was a guarantor, not an “applicant,” and Periwinkle (the loan applicant) had no marital status to support a discrimination claim. Id.

On appeal, the Eleventh Circuit affirmed the District Court’s ruling that as a guarantor, Mrs. Phoenix did not qualify as an “applicant” under ECOA. ECOA defines an applicant 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.” Id. at *3.

Mrs. Phoenix argued that the court should refer to the Federal Reserve Board’s Regulation B, which includes guarantors in the definition of an “applicant.” Id. at *3-4. However, the Eleventh Circuit held that ECOA unambiguously excludes guarantors from the definition of an “applicant,” and therefore does not require deference to agency interpretations, such as Regulation B. Id. at *6.

The Eleventh Circuit opinion in Regions Bank accords with prior decisions of the Seventh and Eighth Circuits, each of which have likewise held that a guarantor is unambiguously not an “applicant,” and therefore lacks standing under ECOA. Regions Bank, 2019 4051703, at *1; Hawkins v. Cmty. Bank of Raymore, 761 F.3d 937 (8th Cir. 2014) (aff’d by an equally divided 4-4 court in 136 S. Ct. 1072); Moran Foods, Inc. v. Mid-Atl. Mkt. Dev. Co., 476 F.3d 436 (7th Cir. 2007). In contrast, in RL BB Acquisition, LLC v. Bridgemill Commons Dev. Grp., 754 F.3d 380 (6th Cir. 2014), the Sixth Circuit held that ECOA is ambiguous in defining an  “applicant,” and courts should therefore defer to agency interpretation that a guarantor is an “applicant.”

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