Pub. 2 2012-2013 Issue 5

20 O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S Beyond Frontenac Spousal Guarantees Are Not Just a Loan Enforcement Issue Much has been written and discussed regarding the recent decision of the Missouri Court of Appeals last September in Fronte- nac Bank v. T.R. Hughes, Inc. However, the issue of obtaining spousal guarantees is now reverberating beyond banks simply seeking to enforce these spousal guarantees. In the Frontenac case, the Court of Ap- peals upheld the lower court’s decision which found Frontenac Bank had violated the Equal Credit Opportunity Act (“ECOA”) when ob- taining guarantees from the spouse. Among the lower court’s findings in reaching its deci- sion, the court determined that: • It was Frontenac’s practice to require the submission of financial statements and then to consider the submission of a joint financial statement as an application for joint credit. • The evidence at trial showed that Frontenac failed to conduct any analysis of the loans sued upon with respect to the borrowers’ creditworthiness prior to requiring the spousal guarantee. • Frontenac did not demand the wife’s guarantees based on any purported relationship she had with the borrowers. Rather, the guarantees were demanded solely on the basis of the spousal relationship. With these findings, it was not surprising the court determined a violation of the ECOA had occurred and the spousal guarantees were rendered void and unenforceable. On the heels of this decision, we are find- ing that spousal guarantees are a point of emphasis in recent compliance examinations of Missouri banks. Examiners are reviewing both loan policies and specific loan files to confirm ECOA and Regulation B compli- ance. To the extent a loan includes a spousal guarantee, the loan file must indicate that an additional guarantee was necessary to sup- FEATURE ARTICLE “ Frontenac was an important wake up call to banks to ensure they will be successful when enforcing a spousal guarantee.” ERNIE PANASCI Partner Stinson Morrison Hecker LLP JASON NONNEMAKER Associate Stinson Morrison Hecker LLP