The Equal Credit Opportunity Act (“ECOA”) was signed into law by Congress in 1974. This law makes it unlawful for a creditor to discriminate against an applicant in any aspect of a credit transaction on the basis of, inter alia, the applicant’s marital status, religion, sex, race, or age. Pub. L. No. 93-495, 15 U.S.C.A. §§1691-1691f. In order to enforce and administer the ECOA, Congress authorized the Federal Reserve Board to promulgate regulations. These regulations shed light on what could be perceived as discrimination in a credit transaction, so it is important for lenders to know and understand these regulations.
One of these regulations states that “a creditor shall not require the signature of an applicant’s spouse or other person, other than a joint applicant, on any credit instrument if the applicant qualifies under the creditor’s standards of creditworthiness for the amount and terms of the credit requested.” See 15 U.S.C.A. §§1691b. In relevant part, 12 C.F.R. § 202.7(d)(1) of Regulation B. However, if a borrower submits a joint financial statement or other evidence of jointly held assets, a creditor cannot deem that to be an application for joint credit in itself. The regulations are more nuanced. If the borrowers are truly joint applicants, prudent creditors will document the joint applicant’s intention to apply for joint credit at the time of the application.
One way to document that the parties are joint applicants is to obtain the parties’ signatures or initials on a credit application affirming applicants’ intent to apply for joint credit. If there is no loan application, the applicants’ intent to apply for joint credit may be evidenced by the presence in the file of a written statement by the applicants that expresses such intent. If a bank’s adherence to the ECOA is called into question down the line, it is helpful to have contemporaneous documentation of the intent of the parties, so creditors should consider setting systems in place to ensure that such documentation is obtained during the application process.