TBA Law Blog

Posted by: Kathryn Edge on Dec 1, 2014

Journal Issue Date: Dec 2014

Journal Name: December 2014 - Vol. 50, No. 12

Our bank clients frequently ask me to predict the “hot buttons” on which regulatory agencies are likely to focus in upcoming examinations. As the financial crisis wanes and fewer banks are plagued by their borrowers’ credit problems, we in the business are seeing the federal banking agencies gear up for an energetic assault on consumer compliance violations. While most community banks will never see the Consumer Financial Protection Bureau’s examiners in their lobbies, the federal prudential regulators (the FDIC, the Federal Reserve and the Office of the Comptroller of the Currency) will take cues from the CFPB on the issues that deserve immediate attention.

Adding to the confusion that many bank compliance officers have in interpreting the Equal Credit Opportunity Act (“Fair Lending,” “ECOA” or “Regulation B”), two judicial circuits, the 6th and the 8th, have split on a seemingly simple issue of the definition of “applicant” under the ECOA. The 8th Circuit Court of Appeals opines that a guarantor of a note is not considered an applicant under the Fair Lending statutes;[1] the 6th Circuit disagrees[2] and sides with the Federal Reserve Board’s pronouncement that the term applicant does include guarantors.[3]

The ECOA, implemented by Regulation B of the Federal Reserve Board of Governors, applies to all creditors. It is designed to protect borrowers from discrimination with respect to any aspect of a credit transaction on the basis of race, color, religion, national origin, sex, marital status or age (assuming the applicant has reached the age of majority for contract purposes). Creditors may not discriminate against an applicant because all or part of the applicant’s income is derived from public assistance or because the applicant has in good faith exercised any right under the Consumer Credit Protection Act. Originally, the ECOA gave the Federal Reserve Board the responsibility for prescribing the implementing regulations, but the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) transferred this authority to the CFPB. In 2011, the CFPB restated the Federal Reserve’s implementing regulation to comply with various Dodd-Frank requirements.[4]

Regulation B defines “applicant” as any person who requests or who has received an extension of credit from a creditor and includes any person who is or may become contractually liable regarding an extension of credit. Judge Raymond W. Gruender, writing for the unanimous 8th Circuit, said, “We find it to be unambiguous that assuming a secondary, contingent liability does not amount to a request for credit. A guarantor engages in different conduct, receives different benefits, and exposes herself to different legal consequences than does a credit applicant.”[5] Judge Gruender further wrote, “Applying the first step of the Chevron framework, we conclude that the text of the ECOA clearly provides that a person does not qualify as an applicant under the statute solely by virtue of executing a guaranty to secure the debt of another.” Looking beneath the regulation to the statute, the 8th Circuit noted that §1691a(b) of the ECOA provides that a person must apply to a creditor directly for credit, or indirectly by use of an existing credit plan for an amount exceeding a previously established credit limit. The 8th Circuit opined, therefore, that “the plain language of the ECOA unmistakably provides that a person is an applicant only if she requests credit. But a person does not, by executing a guaranty, request credit.”

Until this issue is resolved by the United States Supreme Court, if ever, bankers in the 8th Circuit will wonder whether they should listen to the judiciary or Federal Reserve examiners who frequent their banks. Our neighbors in Arkansas will have one definition of “applicant” for ECOA purposes, and Tennessee, another. For banks that do business across state lines, this could be an interesting issue; however, more interesting to bank lawyers is the 8th Circuit’s unconventional decision not to defer to the Federal Reserve’s interpretation. In a separate, concurring opinion Judge Steven M. Colloton accused the Federal Reserve of expanding the definition of “applicant” to include guarantors because Congress limited the cause of action under the ECOA to an “aggrieved applicant.” Regulators observed that if a creditor illegally required a spouse to sign a guaranty as a condition of granting credit to an applicant, then only the “aggrieved applicant” had standing to sue. The Federal Reserve, noted Judge Colloton, redefined “applicant” in 12 C.F.R. §202.2(e) to include guarantors in order to give guarantors independent standing to sue. The Federal Reserve believed that allowing guarantors to bring suit under the ECOA would have the effect of “enhancing protections.” Judge Colloton did not disagree that there might be some salutary effect of the change in policy, but he wrote that “it was not a choice for the [Federal Reserve] Board to make … Congress opted to limit the cause of action to an ‘aggrieved applicant,’ and the statute gave ‘applicant’ its ordinary meaning of one who applies for credit to benefit oneself …”[6]

On Aug. 28, 2013, in a Congressional Research Service report titled “Chevron Deference: Court Treatment of Agency Interpretations of Ambiguous Statutes,”[7] the authors summarize the “Chevron two-step” test.[8] When evaluating whether an agency’s interpretation of a statute is valid, a court must first look to the language of the statute; if the language is clear and unambiguous, the court must interpret the statute as Congress has provided even if the agency has interpreted it in a different way. If a court determines that the statutory language is silent or ambiguous, then the court may determine whether the agency’s interpretation is based on a permissible construction of the statute. The court cannot substitute its own interpretation for that of the agency in such a situation but must grant the agency’s interpretation deference.[9] The 8th Circuit found that the statutory language was clear and unambiguous; the 6th Circuit, the opposite. Maybe the Supreme Court will decide.


  1. Hawkins v. Community Bank of Raymore, No. 13-3065, 2014 WL 3826820 (8th Cir. 08/05/14).
  2. RL BB Acquisition LLC v. Bridgemill Commons Dev. Grp., 754 F. 3rd 380 (6th Cir. 2014).
  3. 12 C.F.R. §202.2(e).
  4. 12 C.F.R. Part 1002 (76 Fed. Reg 79442)(December 21, 2011).
  5. Hawkins v. Community Bank of Raymore, No. 13-3065, 2014 WL 3826820 (8th Cir. 08/05/14).
  6. Ibid.
  7. Congressional Research Service, “Chevron Deference: Court Treatment of Agency Interpretations of Ambiguous Statutes,” 7-5700 (Aug. 28, 2013).
  8. Chevron U.S.A. Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984).
  9. Chevron, 467 U.S. at 842-43.

Katie Edge KATHRYN REED EDGE is a member in the Nashville office of Butler Snow LLP with offices in Tennessee, Mississippi, Alabama, Pennsylvania, Georgia, Louisiana, New York, Colorado and London, England. She is a member of the firm’s Government and Regulatory Practice group and concentrates her practice in representing regulated financial services companies. She is a past president of the Tennessee Bar Association and a former member of the editorial board for the Tennessee Bar Journal.