The reach of the Equal Credit Opportunity Act (“ECOA”) and Regulation B (“Reg B”) has become a popular conversation topic among banking professionals. As part of that conversation, many commentators have questioned whether Regulation B prohibits the use of a spousal waiver.
Pursuant to ECOA and Reg B, it is unlawful to discriminate in a credit transaction on the basis of, among other things, sex and marital status. Clearly, a bank cannot require an applicant’s spouse to sign the note if the individual applicant is creditworthy, and while a bank can require a co-signer or guarantor if an individual applicant does not satisfy underwriting criteria, some authorities have concluded that the bank still cannot require that the co-signer or guarantor be the applicant’s spouse, although there is substantial dispute about that conclusion. However, Reg B provides that a creditor may require the signature of an applicant’s spouse on any instrument(s) necessary, or reasonably believed to be necessary to reach the property being relied upon in the event of a death or default of the loan applicant. See 12 C.F.R. § 1002.7(d)(2), (3), and (4).
Spousal waivers generally require the non-applicant spouse to waive any and all interest in the property pledged by the applicant spouse as collateral. The legal aspects of property ownership by married couples vary from state to state. In nearly all states, however, both spouses retain some type of ownership interest in property acquired during marriage. This could become problematic in situations where only one spouse is the loan applicant or only one spouse is pledging collateral. In these situations, if the bank were to foreclose on the property, the bank might not be able to eliminate the non-party spouse’s rights in the property. Thus, there may be many situations where it would be entirely appropriate to require a spousal waiver as a document reasonably believed by the bank to be necessary to reach the collateral in the event of default, among other reasons.
Although the interplay between Reg B and spousal waivers can be quite complex, your bank should be aware there may be situations where it is entirely appropriate to require a spousal waiver. We recommend that you seek legal advice regarding your state’s laws to determine if and when your bank should utilize spousal waivers.