10th Circuit Affirms Denial of Loan Guarantors’ Credit Discrimination Claims

Last month the U.S. Court of Appeals for the Tenth Circuit, in an unpublished opinion, affirmed the district court’s finding that guarantors of a loan lacked statutory standing to pursue their allegations of credit discrimination by an Oklahoma-based banking corporation (the Bank) under ECOA and 42 U.S.C. § 1981.

As background, the individual plaintiffs alleged that they served as guarantors for a loan that was applied for by the LLC they owned.  The Bank denied the application, and the individual plaintiffs filed suit claiming they were discriminated against on the basis of race, in violation of ECOA, the Fair Housing Act, and 42 U.S.C. § 1981.  After the Bank successfully moved to dismiss the individual plaintiffs’ Fair Housing Act claims, the LLC joined the case as a plaintiff in an amended complaint. 

On the Bank’s subsequent motion, the district court dismissed the individuals’ and LLC’s Fair Housing Act claims, which neither appealed.  The district court also dismissed the individuals’ ECOA claims, holding that the individual plaintiffs were guarantors, not applicants, and that ECOA only prohibits racial discrimination against loan applicants.  Finally, the district court dismissed the individual plaintiffs’ § 1981 claims because they had not alleged injuries stemming from an allegedly racially motivated breach of their contractual relationship with the Bank, but only in connection with the LLC’s contractual relationship.  The rulings left only the LLC’s claims, which the district court dismissed without prejudice, after the LLC’s counsel withdrew and it failed to secure new counsel.

On appeal, the Tenth Circuit rejected the individuals’ argument that the term “applicant” should be construed broadly, consistent with ECOA’s “broad remedial goals.”  The individuals cited the Sixth Circuit’s deference to the regulatory definition of “applicant” that included “guarantor.”  But the Tenth Circuit noted that even under the Sixth Circuit’s application of Chevron’s deferential standard– a standard currently under review by the Supreme Court – the definition only included a “guarantor” as an “applicant” for the limited purpose of ECOA’s signature rules, which were not at issue here.  The Tenth Circuit found that the regulatory text did not include “guarantor” in the definition of “applicant” for other purposes; thus, the individual guarantors had no ECOA claim.

The individuals also argued that they were actually the principal borrowers on the loan because an LLC is a structure devoid of credit or financial history.  However, the Tenth Circuit found that argument lacked merit and only heightened the distinction between a borrower and a guarantor.  The Tenth Circuit also held that the individuals’ arguments that they were co-borrowers on the loan lacked merit because they affirmatively alleged that they were guarantors, not borrowers. 

Finally, the Tenth Circuit upheld the dismissal of the individual plaintiffs’ § 1981 claims for the same reasons they were dismissed by the district court.

The case is Miller, et al v. First United Bank and Trust, 23-6050 (10th Cir. 2024).