Equal Credit Opportunity Act

Liberty Leasing Co. v. Machamer, 1998 WL 289243 (S.D. Ohio 5/28/98). EQUAL CREDIT OPPORTUNITY ACT – Plaintiff sues the wife, who signed as a guarantor, of a business owner who defaulted on a lease for automotive equipment. Equal Credit Opportunity Act ("ECOA") renders it unlawful for any creditor to require the signature of a credit applicant's spouse, other than on a joint application for credit, where the applicant qualifies independently under the creditor's standards for creditworthiness.

According to the court, whether or not a commercial lease constitutes "credit" under ECOA depends upon the terms of the lease. Those terms should be analyzed to determine whether the incremental payments constitute a contemporaneous exchange of consideration for the possession of the leased goods. If the exchange is contemporaneous, than the lessee is not "defer[ing] payment of [a] debt" within the meaning of ECOA. In the case at bar, the court held that the lease contemplated a contemporaneous exchange as a matter of law because, according to the terms of the lease, (i) the lessees were obligated to make "rent payments" for the "quite use and enjoyment" of the equipment, and (ii) the remedial scheme of the lease provided Plaintiff the right to mitigate damages, in the case of default, by releasing the equipment to a third party– in which case the lessees would have been liable only for "any accrued and unpaid rent." According to the court, these clauses indicated as a matter of law, that the lease was not a credit transaction.

In its decision, the court explicitly rejects an earlier decision, Brothers v. First Leasing, 724 F.2d 789 (9th Cir. 1984), to the extent that the Brothers decision held all lease obligations to be "credit" as defined in ECOA.