Today the Southeast Financial Litigation Monitor sat down with Balch Partner John Pickering, member of the Financial Industries Section and leader of the Real Estate, Credit and Commercial Practice Group, to discuss the potential implications for financial institutions after last week’s SCOTUS decision guaranteeing a right for same-sex couples to marry in all fifty states. 

The US Supreme Court recently ruled 5-4 in Obergefell v. Hodges that the US Constitution guarantees a right for same-sex couples to marry in all fifty states. Several states already recognized same-sex marriage, but the high court’s decision dictates policy for every state and the federal government. 

What are some immediate implications we will see as a result of this ruling for financial institutions?

Here’s a good example — consider the spousal guaranty rule under Regulation B, which implements the federal Equal Credit Opportunity Act (ECOA).  ECOA prohibits creditors from discriminating against credit applicants on the basis of several criteria, notably including marital status.  Regulators have long taken the position that requiring the spouse of an applicant for credit – simply because the applicant is married to the spouse — to guaranty the credit extension violates this prohibition.

So does the “marital status” rule prohibit a creditor from requiring the guaranty of a same-sex spouse? Probably.  The definition of “marital status” in the regulation references marital status under “applicable state law”. When the regulations were written, few if any states permitted same-sex marriage.  To the extent they do now, either under laws enacted by their legislatures, prior court decisions, or under the Supreme Court’s recent decision, it would seem that an applicant with a same-sex spouse would now fall under the protections of the spousal guaranty rule.

What should lenders do now to avoid problems in this area going forward?

Prudent creditors will take note of this issue now and consider how their Regulation B compliance practices may need to be revised and updated to take into account the Supreme Court’s decision.

John Pickering is a partner in Balch & Bingham’s Birmingham, Ala., office and the leader of the firm’s Real Estate, Credit and Commercial Practice Group. He concentrates his practice on real estate and commercial lending, factoring, secured transactions, loan restructurings and real estate development. His clients include large and small banks, commercial finance companies, and other businesses, and he assists them with various types of transactions, procedures, regulatory compliance, and new product development.