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National Auto Dealers Exchange, L.P. v. Sauber

A-2524-09T1 (N.J. Super. App. Div. 2011) (Unpublished)

EQUAL CREDIT OPPORTUNITY ACT — The Equal Credit Opportunity Act and its guidelines prohibit a creditor from requiring a spouse’s signature on a note when the applicant individually qualifies for credit; therefore, a court needs to determine whether, in any given situation, a spouse served as a personal guarantor solely because of the spouse’s marital status and without reliance on the spouse’s creditworthiness.

An automotive auction business sold and purchased used vehicles on a wholesale basis. It extended a business line of credit to a used car retailer. After the retailer applied for an increase in its line of credit, the wholesaler required personal guaranties from the principal and his wife. His wife was never an officer or shareholder and was never associated with the business. However, she signed the documents. Ten years later, the wholesaler sued the husband and wife under the guaranty.

The wife filed an answer and a counterclaim, arguing that requiring her personal guaranty in connection with the request for line of credit violated the Equal Credit Opportunity Act (ECOA). The wholesaler’s motion for summary judgment was granted by the lower court. It found that the wife was a proper guarantor because it was reasonable for the wholesaler to want extra security for such a substantial amount of money. The wife appealed.

The ECOA bars discrimination by creditors against any credit applicant “with respect to any aspect of a credit transaction . . . on the basis of race, color, religion, national origin, sex or marital status.” Thus, the ECOA and its guidelines prohibit a creditor from requiring a spouse’s signature on a note when the applicant individually qualifies for credit. “If [a person] was required to sign said Guaranty without any reliance by the lender upon her creditworthiness, solely for the purpose of expediting a loan for her spouse and his business, that Guaranty cannot be enforced against her by the original lender.” The Federal Reserve Board’s regulations allow a spouse to be a guarantor, but the creditor cannot require such. The wife argued that by not assessing her creditworthiness before requiring her to sign the guaranty showed that the guarantee was because of her marital status. The wholesaler countered by arguing that her husband’s financial status warranted further security. The husband was relying on their joint property for most of his net worth, and that is why the wife was asked to sign the guaranty.

The Court found that the record was not sufficient to determine whether, in demanding the guarantee, the wholesaler required the wife to serve as a personal guarantor solely because of her marital status and without reliance on her creditworthiness, in violation of the ECOA. More information was needed about the role of the jointly-owned property, the percentages of equity in the residence, and the creditworthiness of the husband. Therefore, the Court reversed the grant of summary judgment and remanded for more complete development of the record.


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