On May 14, 2010, the Iowa Supreme Court issued a ruling in the case of Bank of the West v. Phyllis J. Kline and Christine Walters, Iowa Supreme Court Case No. 08-1106, that interprets and applies the provisions of the Equal Credit Opportunity Act, or “ECOA.” Alleged violations of the ECOA were raised as a counterclaim and affirmative defense to the bank’s attempt to enforce unlimited guaranties of the obligations of Acme Land Company, L.L.C. that were signed by Phyllis J. Kline and Christine Walters. Phyllis and Christine alleged that they were required to sign the guaranties solely because they were the spouses of John C. Kline and Randal L. Walters and not because other parties obligated to the bank were not sufficiently creditworthy to satisfy Acme’s obligations. The Supreme Court affirmed the trial court’s ruling, entered in connection with a motion for summary judgment by Phyllis and Christine, that a violation of ECOA had occurred which barred the bank from recovery on the wives’ guaranties.
The Court’s ruling clarified two aspects of ECOA law as applied in Iowa. First, it establishes beyond doubt that any party who is contractually liable for a debt is entitled to assert alleged ECOA violations in connection with that debt (prior to the adoption of certain ECOA regulations by the Board of Governors of the Federal Reserve, there had been some doubt whether anyone other than the party who actually applied for the credit had standing to raise an ECOA violation). Second, it aligns the Iowa Supreme Court with courts in other jurisdictions which have ruled that once the two-year statute of limitations has run from the date of the occurrence of an ECOA violation, that violation is available to the injured party only as an affirmative defense or as a “set-off” to the enforcement of the debt – i.e., the victim of the violation cannot bring an affirmative action for damages against the lender.
The Court’s ruling is perhaps most noteworthy insofar as it demonstrates the need for any party resisting a motion for summary judgment to timely raise any factual issue that may exist at the time it files its resistance. The bank in this case raised various legal arguments in resistance to Phyllis and Christine’s motion for summary judgment based on the alleged ECOA violation, but “did not file any pleadings or affidavits concerning the issue of whether Acme and/or Christine’s and Phyllis’s spouses were not sufficiently creditworthy so as to entitle the bank to obtain Christine’s and Phyllis’s unlimited personal guaranties.” The Supreme Court found that the bank’s attempt to subsequently raise the “creditworthy” issue in a trial brief came too late, and accordingly upheld the trial court’s finding that the bank violated ECOA by requiring the guaranties from Phyllis and Christine.
If you have questions, please contact Jon Sullivan at 515-246-4522 or jsullivan@dickinsonlaw.com.
