Eleventh Circuit Weighs in on Circuit Split as to Whether Guarantors are “Applicants” under the Equal Credit Opportunity Act

The Eleventh Circuit in Regions Bank v. Legal Outsource PA, 2019 WL 4051703 (11th Cir. Aug. 28, 2019), was tasked with answering a question that has divided the circuits: whether a guarantor constitutes an “applicant” under the Equal Credit Opportunity Act. And the question divided the panel as well, with Judges William Pryor and visiting District Court Judge K. Michael Moore in the majority, agreeing that a guarantor is not an applicant, and Judge Rosenbaum concurring in part and dissenting in part.

Legal Outsource PA, a law firm wholly owned by Charles Phoenix, defaulted on a loan from Regions Bank, which triggered the default of a loan and mortgage that Regions issued to Periwinkle Partners, LLC, an entity wholly owned by Charles’ wife, Lisa Phoenix. Regions sued to enforce its rights under the loans and mortgage, and the obligors asserted several counterclaims, arguing that Regions discriminated against them based on their marital status by demanding that they guarantee the Periwinkle loan. The district court granted summary judgment in favor of Regions, ruling that Lisa Phoenix lacked standing as an applicant because she was instead a guarantor.

The court began its analysis by citing the relevant provisions of the Equal Credit Opportunity Act, which make it unlawful for “any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction . . . on the basis of . . . marital status.” 15 U.S.C. § 1691(a)–(a)(1). An applicant, in turn, is defined 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.” 15 U.S.C. § 1691a(b). The regulations further define applicant as “any person who requests or who has received an extension of credit from a creditor,” including “any person who is or may become contractually liable regarding an extension of credit” as well as “guarantors.” 12 C.F.R. § 202.2(e).

The court applied the Chevron framework to determine whether to defer to the agency definition of applicant, which includes guarantors. Interpreting the plain language of the statute by consulting numerous dictionaries, the court found the ordinary meaning of applicant to be one who requests credit to benefit himself—not a guarantor. “[T]o say that the guarantor applies for credit by supporting another’s application is to leave ordinary usage behind entirely.” Just as it would be unnatural to call the parents of a high school senior who donate to a college in the hope of their child’s admission “applicants,” the court reasoned, a guarantor is not an applicant, even though her hope for a result is aligned with the applicant’s. Because the statute unambiguously excludes guarantors, the agency rule was not entitled to Chevron deference.

Calling for strict adherence to the statutory text, Judge Pryor criticized the dissent’s “purposivist” approach, calling it a “hornbook abuse of the whole-text canon.” He also denounced Judge Rosenbaum’s reliance on the principle that remedial legislation should be construed broadly to effectuate its purposes, calling it a “false canon” and noting that it has been criticized by jurists as varied as Antonin Scalia and Richard Posner, for its fundamentally indeterminate coverage.

In holding that a guarantor is not an ECOA “applicant,” the Eleventh Circuit joined the Seventh and Eighth Circuits. The Eighth Circuit decision was affirmed by an equally divided Supreme Court sitting with only eight justices. The Sixth Circuit has reached the opposite conclusion.

Posted by Keith Emanuel.


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