Burr & Forman

11.12.2013   |   Blog Articles, Consumer Finance Litigation, ECOA, Fourth Circuit

Fourth Circuit: Borrower Validly Waived ECOA Claim After Executing Waiver In Connection With Loan Restructuring Agreements

The U.S. Court of Appeals for the Fourth Circuit recently held that waiving any and all claims as part of loan restructuring agreements applied to a claim under the Equal Credit Opportunity Act (“ECOA”). In Ballard v. Bank of America, N.A., — F.3d —, 2013 WL 5814757 (4th Cir. 2013), the plaintiff filed suit alleging that the lender violated the ECOA by requiring her to guarantee loans to her husband’s business. The plaintiff’s husband obtained a business loan and, after defaulting on the loan, sought to restructure the debt. The lender required the plaintiff to guarantee the original loan and execute the subsequent restructuring agreements after default. When the plaintiff executed the restructuring agreements, she waived “any and all claims.” The court found that the ECOA prohibits creditors from discriminating against applicants with respect to marital status and prohibits requiring a spouse’s signature on a loan agreement when the person individually qualifies for the loan. The ECOA has several exceptions which allow lenders to obtain the signature of a borrower’s spouse. First, a lender may require a spouse’s signature after it determines that the borrower does not independently qualify for the loan. Second, a lender may require a spouse’s signature if the spouse co-owns the entity that benefits from the loan. Finally, a lender may require a spouse’s signature when he or she jointly owns the property used as collateral for the loan. The plaintiff argued that the lender violated the ECOA by requiring her to guarantee the loan without determining her husband’s creditworthiness and by requiring her to assume unlimited liability on the debt. Taking the allegations in the plaintiff’s complaint as true, the court found that none of the exceptions applied. The plaintiff alleged that the lender failed to assess her husband’s creditworthiness before requiring her signature, she was not a co-owner or shareholder of her husband’s business, and she did not co-own the properties used as collateral. While the court found that none of the exceptions under ECOA applied, it determined that the plaintiff waived her ECOA claim with each loan restructuring agreement she executed. Significantly, the court determined that the lender did not require the plaintiff to execute the waiver as a precondition for obtaining the loan. Instead, the lender required the waiver after the company defaulted on the loan as part of the restructuring agreement, which “afford[ed] both parties a negotiated benefit.” Accordingly, the court held that the borrower waived her ECOA claim and affirmed the lower court’s dismissal of the plaintiff’s complaint. For more information on consumer finance litigation topics, please contact one of the Burr & Forman team members for assistance. We are happy to answer any questions or concerns you may have.

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