The U.S. Court of Appeals for the Third Circuit has held that the Equal Credit Opportunity Act does not preempt New Jersey’s common-law doctrine of necessaries whereby a spouse is jointly liable for necessary expenses incurred by the other spouse. As a result, the plaintiff could not rely on preemption as the basis for her claim that the defendant law firm violated the Fair Debt Collection Practices Act by attempting to collect a debt from her that she did not owe for her deceased husband’s medical expenses.
In Klotz v. Celentano Stadtmauer and Walentowicz LLP, the plaintiff’s deceased husband incurred a debt to a hospital for medical expenses that he did not pay before he died. The husband left no estate and the hospital retained the defendant law firm to collect the debt from the plaintiff. The plaintiff sued the law firm for violating the FDCPA by sending her letters to collect a debt she did not owe. The law firm successfully moved to dismiss the lawsuit, arguing that the plaintiff owed the debt under New Jersey’s common-law doctrine of necessaries because her husband incurred the debt for medical treatment.
On appeal, the plaintiff argued that the law firm’s collection letters violated the FDCPA because the ECOA preempts the doctrine of necessaries. Specifically, she argued that the doctrine of necessaries conflicts with the ECOA prohibition of discrimination against an applicant on the basis of marital status and the implementing Regulation B provision that prohibits a creditor from requiring the signature of an applicant’s spouse if the applicant is independently creditworthy. According to the plaintiff, because the doctrine of necessaries effectively treats her as a spousal co-signer on the debt in violation of the spousal-signature prohibition, the prohibition preempts the doctrine.
In affirming the district court’s dismissal of the lawsuit, the Third Circuit held that the ECOA does not preempt the doctrine of necessaries because the debt is “incidental credit”’ exempt from the spousal-signature prohibition. (The Third Circuit indicated that, for purposes of its analysis, it was “[p]utting aside questions such as whether the [law firm] is a ‘creditor’ and [the plaintiff] an ‘applicant’ under the spousal-signature prohibition.”) The Third Circuit observed that the ECOA gave the Federal Reserve Board authority to exempt certain categories of transactions from the ECOA’s scope “after making an express finding that the application of…any provision…would not contribute substantially to effecting the purposes of [the ECOA].” In 2003, the Fed exercised this authority by exempting “incidental credit” from the spousal-signature prohibition. Regulation B defines “incidental credit” as “extensions of consumer credit…(i) [t]hat are not made pursuant to the terms of a credit card account; (ii)[t]hat are not made subject to a finance charge…and (iii)[t]hat are not payable by agreement in more than four installments.” (The Third Circuit noted that the Fed’s rulemaking authority under the ECOA was generally transferred to the CFPB in 2011.)
The Third Circuit found that the plaintiff’s medical debt qualified as “incidental credit” because it satisfied all three definitional criteria. Since the spousal-signature prohibition did not apply, the Third Circuit held that the ECOA and Regulation B did not preempt the doctrine of necessaries as a matter of conflict preemption because the plaintiff could not show either that the doctrine of necessaries makes compliance with the ECOA impossible or stands as an obstacle to the accomplishment of the ECOA’s purposes. According to the Third Circuit, the law firm’s use of the doctrine (1) complied with the ECOA because medical debt is “incidental credit” exempt from the spousal-signature prohibition, and (2) did not frustrate the ECOA’s purposes which are focused on ensuring the availability of credit rather than the allocation of liability between spouses.