Recent court cases have held that under the Equal Credit Opportunity Act, a commercial lender is not allowed to require the spouse of a business borrower to act as a guarantor or surety of a business loan. For example, if your company takes out a loan at Friendly National Bank, the lender may require you, as the person involved with the business, to act as a guarantor or surety, but the lender may not require your spouse to do so. Such conduct is considered unlawful discrimination on the basis of marital status and violates Federal Reserve Board Regulation B.
If your business is not creditworthy alone, your lender may still require one or more persons to act as guarantors, but may not require spouses to do so. Spouses may offer to act as guarantors voluntarily, however.
Several recent cases have been lost by commercial banks who unlawfully required spouses of business borrowers to act as guarantors or sureties. In some of those cases, the bank was prevented from collecting all or part of the underlying business loan because of the violation. In other cases, the innocent spouse was awarded damages as an off-set to the amount due the lender.
For spouses of business borrowers, the message is simple: Commercial lenders cannot lawfully require you to be a guarantor. For banks, the watchword is to use care in the loan commitment and documentation phases of business loan transactions to make certain that spousal guaranties are obtained lawfully.
If your business is not creditworthy alone, your lender may still require one or more persons to act as guarantors, but may not require spouses to do so. Spouses may offer to act as guarantors voluntarily, however.
Several recent cases have been lost by commercial banks who unlawfully required spouses of business borrowers to act as guarantors or sureties. In some of those cases, the bank was prevented from collecting all or part of the underlying business loan because of the violation. In other cases, the innocent spouse was awarded damages as an off-set to the amount due the lender.
For spouses of business borrowers, the message is simple: Commercial lenders cannot lawfully require you to be a guarantor. For banks, the watchword is to use care in the loan commitment and documentation phases of business loan transactions to make certain that spousal guaranties are obtained lawfully.
– Kevin Palmer