The first Monday in October will bring the Justices a refreshing gem of a case in Hawkins v. Community Bank of Raymore. Herein nothing of same-sex marriage, capital punishment, affirmative action, or the like. Rather, as simple and straightforward a question of statutory interpretation as a fresh-from-the-court-of-appeals clerk could desire.
The case involves marital discrimination in credit transactions. It arises out of a loan by the Community Bank of Raymore to PHC – a Missouri limited-liability company – for the purpose of developing a residential subdivision. As is typical in such transactions, the bank asked for a guaranty to support the creditworthiness of both PHC and its two members, Gary Hawkins and Chris Patterson. Specifically, the bank required a guaranty from Valerie Hawkins and Janice Patterson, the two members’ spouses. That requirement is surprising, because the Federal Reserve’s Regulation B has barred banks from requiring spousal guaranties for thirty years. When the borrower and lender fell into a dispute, Valerie Hawkins and Janice Patterson brought suit claiming that the guaranties should be invalidated as a violation of Regulation B and the Equal Credit Opportunity Act (the “ECOA”), which Regulation B implements.
That brings us to the legal conundrum that the case presents to the Court. The ECOA makes it unlawful to “discriminate against any applicant,” and it defines an applicant as “any person who applies to a creditor directly for an extension, renewal, or continuation of credit.” The Bank has the easy textual side of the argument: whatever you want to say about the statute, it is not at all obvious that a spouse, obligated to serve as a guarantor for credit sought and granted to another, has “applie[d] to a creditor directly for . . . credit.” If that is correct, then Valerie Hawkins and Janice Patterson are not applicants and thus have no standing to complain about the bank’s actions.
What Hawkins and Patterson have going for them is the antiquity of the regulatory interpretation outlawing the practice. Regulation B has been in place unchallenged for a generation, prohibiting the specific practice at issue in this case. Moreover, for those Justices who might care about the subject, the legislative history makes it plain that Congress intended for the ECOA to address the spousal guaranty problem. The Justices surely will recognize the practice as a relic of an era when the property and credit of wives were nothing but adjuncts of the financial characteristics of their husbands. It is safe to expect that recognition to motivate several of them to condemn the practice in this case. Still, the difficulty of reading “applicant” to include a spousal guarantor will stick in the craw of some; Justice Alito’s recent speeches suggest he well may be in that group.
The wild card might be the unusually broad grant of regulatory authority in the ECOA, which directly authorizes the Board to “prescribe regulations” and goes on to emphasize:
These regulations may contain but are not limited to such classifications, differentiation, or other provision, and may provide for such adjustments and exceptions for any class of transactions, as in the judgment of the [Board] are necessary or proper to effectuate the purposes of [ECOA], to prevent circumvention or evasion thereof, or to facilitate or substantiate compliance therewith.
Remarkably, despite the emphatic reliance on that mandate by the federal government (which filed an amicus brief defending the regulation), the bank does not so much as mention it in its brief.
The Justices should find the case a welcome respite after a morning that will begin with oral arguments in a case considering the coverage of the Austrian national railway under the Foreign Sovereign Immunities Act. Given the apparent weaknesses on both sides of Hawkins, counsel on both sides can expect stern inquiries.
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