When a married person applies for credit, it is understandable that the lender would want the applicant's spouse to cosign for a loan or to guaranty its payment. However, if the applicant qualifies for the credit based upon the applicant's own credit record, that demand is improper. In fact, outside of a community property state, a creditor offering an unsecured account such as a store account or credit card should not even ask if the applicant is married.
The Equal Credit Opportunity Act (ECOA) is a federal law that was implemented to prevent discrimination in the issuance of credit. Specifically, the ECOA prohibits discrimination basis of a credit applicant's race, color, religion, national origin, sex, marital status, receipt of income from a public assistance program, or due to the applicant's good faith exercise of any right under the Consumer Credit Protection Act. Creditors may not consider a credit applicant's age unless the applicant is below the age of eighteen or to provide special offers for credit applicants aged sixty-two or older.
When a person applies for credit, even if the creditor knows or believes the applicant to be married, the creditor should not assume that the applicant wants to apply for joint credit. The applicant's credit application should be reviewed on its own merit.
Creditors should avoid common mistakes such as:
Assuming an intent to apply for joint credit with the spouse;
Improperly refusing to allow a guarantor or cosigner who is not the applicant's spouse;
Taking the applicant's marital status into account during the underwriting process; or
Improperly requiring the spouse to sign loan documents.
Where a married person qualifies for credit, creditors may take certain steps to protect their interests without running afoul of the ECOA.
Secured Loans - If a married person applies for a secured loan, such as a mortgage or car loan, a creditor may take limited steps to ensure that they may repossess or foreclose against the collateral if the borrower defaults or dies before repayment is complete. A creditor may thus require that a spouse sign an instrument that the creditor reasonably believes to be necessary under the governing state law to allow access to or repossession of the property in the event of the borrower's death or default.
Unsecured Credit - Where a married person references an asset that is jointly owned with a spouse in order to qualify for credit, as a condition of extending credit, the creditor may require that the other spouse sign documents that are necessary, or that are reasonably believed by the creditor to be necessary, to enable the creditor to reach the property being relied upon as a basis for the extension of credit in the event of default or the death of the applicant.
Business Loans - A lender that is extending credit or making a loan to a business may seek guarantees from its partners, officers, directors, or shareholders. It is possible to require guarantees from married persons based upon their relationship to the business, independently of the fact that they are married. If the spouse's consent to a security agreement is sufficient to protect the creditor, the spouse cannot be required to become a co-borrower or guarantor, and any attempt to impose personal liability on the spouse is improper unless required by state law.
In essence, where one spouse independently qualifies for credit, a creditor should act very carefully to remain in compliance with the ECOA and should require the minimum commitment from the other spouse as necessary to protect its interests under the governing state law.
Violations of the ECOA can support a lawsuit by a credit applicant. The applicant may seek to recover actual damages, punitive damages, court costs and attorney fees. A lender with a pattern of ECOA violations may become the subject of a class action lawsuit.
ECOA violations may be investigated by a number of government agencies, with the Consumer Financial Protection Bureau being the federal agency that is principally responsible for its enforcement.