U.S. v. ITT Consumer Financial Corp., No. 85-2810

CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)
Writing for the CourtBefore KENNEDY, TANG and THOMPSON; DAVID R. THOMPSON
Citation816 F.2d 487
PartiesUNITED STATES of America, Plaintiff-Appellant, v. ITT CONSUMER FINANCIAL CORPORATION, and Aetna Finance Company, Delaware Corporations, Defendants-Appellees.
Docket NumberNo. 85-2810
Decision Date05 May 1987

Page 487

816 F.2d 487
55 USLW 2629
UNITED STATES of America, Plaintiff-Appellant,
v.
ITT CONSUMER FINANCIAL CORPORATION, and Aetna Finance
Company, Delaware Corporations, Defendants-Appellees.
No. 85-2810.
United States Court of Appeals,
Ninth Circuit.
Argued and Submitted Dec. 9, 1986.
Decided May 5, 1987.

Page 488

Christine R. Whittaker, Washington, D.C., for plaintiff-appellant.

C. Douglas Floyd, San Francisco, Calif., for defendants-appellees.

Appeal from the United States District Court for the Northern District of California.

Before KENNEDY, TANG and THOMPSON, Circuit Judges.

DAVID R. THOMPSON, Circuit Judge:

The government brought this action against ITT Consumer Financial Corporation and Aetna Finance Company ("defendants"), alleging that their money lending practices discriminate against loan applicants on the basis of marital status. Claiming these practices violate the Equal Credit Opportunity Act ("ECOA"), 15 U.S.C. Secs. 1691-1691e, and Federal Reserve Board Regulation B ("Regulation B"), 12 C.F.R. Sec. 202.7 (1985), 1 the government sought an injunction under 15 U.S.C. Sec. 1691e(h) and $10,000 in civil penalties under 15 U.S.C. Secs. 45(m)(1)(A), 1691c(c) and 1691e(h). The district court concluded that the lending practices do not violate the ECOA or Regulation B and granted the defendants' motion for summary judgment. We agree and we affirm.

I
FACTS AND PROCEEDINGS

The defendants lend money to individuals, including individuals who live in seven states which have "equal management" community property laws. Under the community property laws of these states the husband and wife have equal management and control of community property. These states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, and Washington. 2 Defendants make loans in these states on either a secured or unsecured basis, except in Arizona where only secured loans are made. In assessing creditworthiness of an applicant for a loan, the defendants consider the applicant's future earnings and credit history. The defendants require a co-signer if an applicant cannot qualify for an unsecured loan on the basis of his or her own future earnings. The co-signer may be any person whose future earnings sufficiently augment the applicant's future earnings to establish creditworthiness for the loan. Existing assets are not taken into consideration except in the making of secured loans.

In determining whether a married applicant qualifies for an unsecured loan, the defendants do not consider the future earnings of the applicant's spouse unless the spouse agrees to co-sign the promissory note. The government contends that in equal management community property states future earnings of married persons are community property and that under state law in these states the applicant, by his or her signature alone, can obligate a spouse's future earnings to repay a loan. The government argues that defendants discriminate against married applicants when they require a spouse's signature in order to count the spouse's future earnings toward establishing creditworthiness for a loan.

Page 489

II

JURISDICTION

Defendants are among the class of creditors required to comply with the ECOA because they regularly extend credit. 15 U.S.C. Sec. 1691a(e). With exceptions not applicable here, the Federal Trade Commission ("FTC") is responsible for enforcement of the ECOA and related Federal Reserve Board regulations. 15 U.S.C. Sec. 1691c(c). If the FTC is unable to obtain compliance with a requirement of the ECOA, the FTC is "authorized to refer the matter to the Attorney General with a recommendation that an appropriate civil action be instituted." 15 U.S.C. Sec. 1691e(g). The Attorney General is then empowered to "bring a civil action in any appropriate United States district court for such relief as may be appropriate, including injunctive relief." 15 U.S.C. Sec. 1961e(h); see United States v. Landmark Financial Services, 612 F.Supp. 623, 626 (D.Md.1985); United States v. Beneficial Corp., 492 F.Supp. 682, 683 (D.N.J.1980), aff'd mem., 673 F.2d 1302 (3d Cir.1981). Under 15 U.S.C. Sec. 1691c(c), a violation of the ECOA is deemed a violation of the Federal Trade Commission Act, 15 U.S.C. Secs. 41-77, which provides for a civil penalty of up to $10,000 for each violation. 15 U.S.C. Sec. 45(m)(1)(A). The government thus had statutory authorization to bring this action and the district court had jurisdiction to hear it. 15 U.S.C. Sec. 1691e(h); 28 U.S.C. Sec. 1345; 3 see Beneficial, 492 F.Supp. at 683. We have jurisdiction to hear this appeal from the district court's final judgment. 28 U.S.C. Sec. 1291.

III
MERITS

A. The ECOA

Section 701 of the ECOA provides in pertinent part: "It shall be unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction ... on the basis of ... marital status...." 15 U.S.C. Sec. 1691(a)(1). "We must construe the literal language of the ECOA in light of the clear, strong purpose evidenced by the Act and adopt an interpretation that will serve to effectuate that purpose." Brothers v. First Leasing, 724 F.2d 789, 793 (9th Cir.), cert. denied, 469 U.S. 832, 105 S.Ct. 121, 83 L.Ed.2d 63 (1984) (citation omitted). "The purpose of the ECOA is to eradicate credit discrimination waged against women, especially married women whom creditors traditionally refused to consider for individual credit." Anderson v. United Finance Co., 666 F.2d 1274, 1277 (9th Cir.1982) (citing Markham v. Colonial Mortgage Service Co., 605 F.2d 566, 569 (D.C.Cir.1979)). We have stated that "[t]he ECOA makes it unlawful for any creditor to discriminate with respect to any credit transaction on the basis of marital status." Miller v. American Express Co., 688 F.2d 1235, 1237 (9th Cir.1982). However, section 705 of the ECOA provides in part: "Consideration or application of State property laws directly or indirectly affecting creditworthiness shall not constitute discrimination for purposes of this subchapter." 15 U.S.C. Sec. 1691d(b).

The defendants contend that the community property laws of equal management community property states do not permit a married applicant to obligate his or her spouse's future earnings to repay a loan because those future earnings are not community property. They argue that the spouse's future earnings will become separate property if the community terminates because of death or divorce, and that the character of future earnings may be altered by a move to a noncommunity property state or in some states by separation or agreement of the spouses. The defendants further assert that if the future earnings become separate property those earnings will not be available to repay the loan unless the spouse has signed the promissory note, or some other appropriate document, and so they are justified in requiring the

Page 490

spouse's signature if an applicant relies on his or her spouse's future earnings to qualify for a loan.

Characterization of earnings as separate or community property is established by the time and manner of acquisition. 4 Absent agreement (in some states), 5 separation (in some states), 6 or change of domicile to a non-community property state, 7 earnings acquired during marriage are community property, 8 and earnings acquired after dissolution of the community by death 9 or divorce 10 will be the separate property of the acquiring spouse. 11 Because

Page 491

a spouse's future earnings may become separate property rather than community property, the characterization of future earnings cannot be made prospectively. Earnings cannot be characterized as community property until they are earned. A married applicant's equal management power over community property, therefore, does not extend to the applicant's spouse's future earnings, and the applicant cannot commit his or her spouse's future earnings to repay the loan unless the spouse signs a promissory note or some other document to accomplish that result. 12 Accordingly, a lender is justified in requiring the spouse's signature when a married applicant relies on his or her spouse's future earnings to establish creditworthiness.

We conclude that the defendants' practice of requiring the spouse of a married applicant to co-sign the promissory note when the applicant relies on his or her spouse's future earnings to qualify for a loan involves nothing more than a consideration of state law as it affects the applicant's creditworthiness. The practice is nondiscriminatory under section 705 of the ECOA, and does not violate the Act. 15 U.S.C. Sec. 1691d(b). We next consider whether the practice violates Regulation B.

B. Regulation B

Pursuant to congressional authorization contained in 15 U.S.C. Sec. 1691b, the Federal Reserve Board promulgated Regulation B, codified at 12 C.F.R. Sec. 202.7, to carry out the purposes of the ECOA. Miller, 688 F.2d at 1237. A violation of these regulations constitutes "discrimination" under the ECOA. Anderson, 666 F.2d at 1276-77. The government contends that the defendants' married applicant co-signer requirement is prohibited by 12 C.F.R. Secs. 202.7(d)(1), 202.7(d)(3) and 202.7(d)(5).

The government asserts that we should be guided by a Federal Reserve staff member's "informal" interpretation of Regulation B. That interpretation was premised on the assumption that future earnings of either spouse are community property under state equal management community

Page 492

property laws because they will become community property if the community continues until those earnings are realized. Based on that premise, the interpretation concludes that "to require the signature of the non-applicant...

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8 practice notes
  • Resolution Trust Corp. v. TOWNSEND ASSOCIATES, No. 92-76202.
    • United States
    • United States District Courts. 6th Circuit. United States District Court (Western District Michigan)
    • December 10, 1993
    ...to obtain their husbands' joinder to any credit applications. See 15 U.S.C. § 1691d(a); United States v. ITT Consumer Finance Corp., 816 F.2d 487, 489 (9th Cir.1987). Among the regulations promulgated under ECOA is the (d) Signature of spouse or other person — (1) Rule for qualified applica......
  • Bolduc v. Beal Bank, Ssb, Civil No. 97-570-JM.
    • United States
    • U.S. District Court — District of New Hampshire
    • February 3, 1998
    ...Congress enacted ECOA to proscribe discriminatory lending practices repugnant to public policy. See U.S. v. ITT Consumer Fin. Corp., 816 F.2d 487, 489 (9th Cir.1987); Anderson v. United Fin. Co., 666 F.2d 1274, 1277 (9th Cir.1982). Regulations enforcing ECOA protect the spouses of independe......
  • In re DiPietro, Bankruptcy No. 91-13683S.
    • United States
    • United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Eastern District of Pennsylvania
    • January 28, 1992
    ...had been required to obtain their husbands' joinder to any credit applications. See United States v. ITT Consumer Finance Corp., 816 F.2d 487, 489 (9th Cir.1987); and Cragin v. First Federal Savings & Loan Ass'n, 498 F.Supp. 379, 382-83 (D.Nev. 1980). These cases establish that the issue of......
  • Riggs Nat. Bank of Washington, DC v. Linch, Civ. A. No. 92-1363-A
    • United States
    • United States District Courts. 4th Circuit. United States District Court (Eastern District of Virginia)
    • August 3, 1993
    ...especially married women whom creditors traditionally refused to consider for individual credit); U.S. v. ITT Consumer Financial Corp., 816 F.2d 487, 489 (9th Cir. 1987) (same); Markham v. Colonial Mortgage Serv. Co., 605 F.2d 566, 569 (D.C.Cir. 1979). Regulation 202.7(d)(1) was promulgated......
  • Request a trial to view additional results
8 cases
  • Resolution Trust Corp. v. TOWNSEND ASSOCIATES, No. 92-76202.
    • United States
    • United States District Courts. 6th Circuit. United States District Court (Western District Michigan)
    • December 10, 1993
    ...to obtain their husbands' joinder to any credit applications. See 15 U.S.C. § 1691d(a); United States v. ITT Consumer Finance Corp., 816 F.2d 487, 489 (9th Cir.1987). Among the regulations promulgated under ECOA is the (d) Signature of spouse or other person — (1) Rule for qualified applica......
  • Bolduc v. Beal Bank, Ssb, Civil No. 97-570-JM.
    • United States
    • U.S. District Court — District of New Hampshire
    • February 3, 1998
    ...Congress enacted ECOA to proscribe discriminatory lending practices repugnant to public policy. See U.S. v. ITT Consumer Fin. Corp., 816 F.2d 487, 489 (9th Cir.1987); Anderson v. United Fin. Co., 666 F.2d 1274, 1277 (9th Cir.1982). Regulations enforcing ECOA protect the spouses of independe......
  • In re DiPietro, Bankruptcy No. 91-13683S.
    • United States
    • United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Eastern District of Pennsylvania
    • January 28, 1992
    ...had been required to obtain their husbands' joinder to any credit applications. See United States v. ITT Consumer Finance Corp., 816 F.2d 487, 489 (9th Cir.1987); and Cragin v. First Federal Savings & Loan Ass'n, 498 F.Supp. 379, 382-83 (D.Nev. 1980). These cases establish that the issu......
  • Riggs Nat. Bank of Washington, DC v. Linch, Civ. A. No. 92-1363-A
    • United States
    • United States District Courts. 4th Circuit. United States District Court (Eastern District of Virginia)
    • August 3, 1993
    ...especially married women whom creditors traditionally refused to consider for individual credit); U.S. v. ITT Consumer Financial Corp., 816 F.2d 487, 489 (9th Cir. 1987) (same); Markham v. Colonial Mortgage Serv. Co., 605 F.2d 566, 569 (D.C.Cir. 1979). Regulation 202.7(d)(1) was promulgated......
  • Request a trial to view additional results

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