Lender’s ECOA Violation Requiring Spousal Guaranty bars Enforcement in in North Carolina
On August 20, 2013, the North Carolina Court of Appeals held, as a matter of first impression, that a lender requiring a spousal loan guaranty in violation of the Equal Credit Opportunity Act is an affirmative defense barring enforcement of the guaranty.
As the opinion discusses, courts in various states have adopted different theories of ECOA liability. In some, guarantors must asset and prove damages resulting from the violation. In others, a guarantor may assert a recoupment defense – a defense arising from the same transaction that may have been barred by the applicable statute of limitations. In a third group of states, now joined by North Carolina, a guarantor may assert an ECOA violation as an illegality defense, barring enforcement of the guarantee in toto.
We believe that the third approach above [an affirmative defense based on the defense of illegality] is the most consistent with the law of this State…
The case, Rl Regi North Carolina, LLC v. Lighthouse Cove, LLC, may be downloaded and viewed here.