Equally Liable: Credit Cards and Consumer Lending in a Community Property State – As seen on the Wisconsin State Bar Business Law Blog
Weld Riley attorney MaiVue Xiong was published on the Wisconsin State Bar Business Law Blog. Read more here.
Absent a prenuptial or martial property agreement, “what’s yours is mine and what’s mine is yours” holds true for all marital assets and marital debt in Wisconsin. This is the case even when a spouse has not signed to obtain the debt, so long as the lender extending the credit obligations provides certain notifications to the non-applicant spouse.
The notification requirements are even more vigorous when the Wisconsin Consumer Act governs the credit obligations, which includes “consumer credit transactions” or consumer loans, credit cards, and credit sales under $25,000 that are subject to a finance charge and payable in installments.
This article focuses on the rules lenders must follow to successfully grant consumer loans to ensure compliance with state and federal laws, and also addresses legal ramifications married individuals, especially non-applicant spouses, should be aware of when living in a community property state.
The Marriage Benefit
Wisconsin law presumes that an obligation incurred by a spouse during a marriage is incurred for the benefit of the marriage, even if the obligation is not signed off by the other spouse (the non-applicant spouse).1
A statement simply reflecting this “marriage benefit” language in a loan application is conclusive evidence that the loan incurred solely by the applicant spouse is for the interest of the marriage or family.2
A lender can then legally hold a non-applicant spouse liable for the applicant spouse’s credit obligation, as long as the lender
1) includes in its credit application that no marital property agreement, prenuptial agreement, unilateral statement, or court order exists to affect the interest of the lender, and the lender does not receive such agreement prior to granting the credit obligations;3 and
2) has properly provided the non-applicant spouse written notice of the credit obligation before any payment is due, also known as the “tattletale” notice.4
A non-applicant spouse may terminate an open-end credit plan initiated by the other spouse,5 but if such termination notice has not been received by a lender, the debt incurred by the applicant spouse is expected to be paid using both the applicant spouse’s individual property and the couple’s marital property, which means the non-applicant spouse is automatically liable for the applicant’s spouse marital debt.6
Since a non-applicant spouse is liable for his/her spouse’s marital loans, a lender may also pull the non-applicant’s consumer report information (credit report) in assessing the spouse’s creditworthiness.
The Equal Credit Opportunity Act (ECOA) was enacted in 1974 to ensure lenders do not discriminate granting credit and loans on the basis of protective classes, including a consumer’s marital status. However, section 1002.5(c)(2) of the ECOA, Regulation B, specifically allows a lender to request “for any information concerning an applicant’s spouse … that may be requested about the applicant” if the spouse will be contractually liable on the account or if the applicant resides in a community property state.
This means that, in Wisconsin, a non-applicant’s spouse’s credit report may be pulled and used as a risk evaluation tool in assessing the spouse’s creditworthiness without violating the ECOA, even though the non-applicant spouse may have no knowledge yet that his/her spouse had originated a loan.
The lender then may report credit information and its experience, whether good or bad, on both the applicant and non-applicant spouses to the credit bureaus.7 There is no requirement that a lender furnish credit information, but if it does, it must make sure that the information is accurate, complete, and in compliance with the lender’s written policies and procedures.8
If a lender chooses to furnish information on an account, and the account is a consumer loan for a married individual living in a community property state, the information must include the names of both spouses – though the lender doesn’t have to distinguish between the applicant and non-applicant spouse.9
If a lender is asked by a credit reporting agency about a particular borrower, and the lender chooses to respond to the request, the lender can only provide information in the name of the spouse about whom the information was requested, and not in the name of the non-applicant spouse.10 This is to ensure that the credit report of both spouses are complete with all relevant information while at the same time limiting access to information relating to the non-applicant spouse.
This last subsection of section 1002.10 of the ECOA attempts to build in some protection for the non-applicant spouse, but by and large, non-applicant spouses in Wisconsin and other community property states are equally liable on debt incurred by their spouses.
As long as lenders have fulfilled their obligations and given proper notices, married individuals in Wisconsin without pre-nuptial or marital agreements should always keep in the back of their minds that “what’s yours is mine and what’s mine is yours” to avoid any surprises the next time they pull a credit report.
1 Wis. Stat § 766.55(1)
2 Wis. Stat § 766.55(1)
3 Wis. Stat § 766.56(2)(b). This requirement does not apply to open-end plans such as credit cards where the consumer may pay down and obtain new credit without further application.
4 Wis. Stat § 766.56(3)(b)
5 Wis. Stat § 422.4155
6 Wis. Stat § 766.55(2)(b)
7 § 1002.10(a) of the ECOA
8 § 660 of the Federal Credit Report Act (FCRA)
9 § 1002.10(b) of the ECOA
10 § 1002.10(c) of the ECOA