VIRGINIA
F. MILLER v. AMERICAN EXPRESS COMPANY
UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
688 F.2d 1235; 1982 U.S. App. LEXIS 25320
March 4, 1982, Argued and Submitted September 27, 1982, Decided
Virginia Miller brought an action in district court alleging a
violation of the Equal Credit Opportunity Act (ECOA), 15 U.S.C.
§§ 1691 et seq., after her American Express card was
cancelled following the death of her husband. At issue is whether the
American Express Company's (Amex) policy of automatically cancelling a
supplementary cardholder's account upon the death of the basic
cardholder violated the ECOA. The district court granted Amex's motion
for summary judgment. We reverse.
FACTS
Maurice Miller, plaintiff's late husband, applied for and received an
American Express credit card in 1966. His account was denominated a
Basic Card Account. Later in 1966, plaintiff Virginia Miller applied
for and was granted a supplementary card. Her application was signed by
her husband as the basic cardholder and by her. Mrs. Miller agreed to
be personally liable for all charges made on her supplementary card.
Her card bore a different account number from her husband's card, was
issued in her own name, required a separate annual fee, and bore a
different expiration date from Mr. Miller's card. The Millers used
their American Express cards until Mr. Miller passed away in May, 1979.
Two months after her husband's death, Mrs. Miller attempted to use her
card during a shopping trip and was informed by the store clerk that
her account had been cancelled. This was the first notice she received
of the cancellation. Subsequently, Amex informed her that her account
had been cancelled pursuant to a policy of automatically terminating
the account of a supplementary cardholder upon the death of a basic
cardholder. Amex invited her to apply for a basic account. Her
application for a new account consisted merely of filling out a short
form, entitled "Request to Change Membership status from Supplementary
to Basic Card member," which did not require any financial or credit
history data. Amex issued Mrs. Miller a new card, apparently on the
basis of her thirteen year credit history in the use of the card it had
just cancelled. Mrs. Miller brought suit against Amex for violation of
the ECOA.
In the district court, the parties made cross motions for summary
judgment on the issue of liability. Mrs. Miller argued that because her
supplementary card had been cancelled after a change in her marital
status, 12 C.F.R. § 202.7(c) had been violated, giving rise to a
cause of action under the ECOA. Amex argued that Mrs. Miller was not
within the terms of the regulation, and that she had not raised an
issue of fact as to whether its allegedly uniform cancellation policy
was discriminatory in motive or effect. The court awarded summary
judgment to Amex without specifying its reasons.
ANALYSIS
The issues on this appeal are whether Amex's policy of cancelling a
spouse's supplementary account upon the death of the basic cardholder
violates the ECOA and whether a plaintiff must always show
discriminatory intent or effect to establish an ECOA violation. The
facts are undisputed, therefore, we must decide whether the substantive
law was correctly applied. We hold that there has been credit
discrimination within the meaning of the ECOA and that partial summary
judgment on the issue of liability should have been granted to Mrs.
Miller, rather than to Amex.
The ECOA makes it unlawful for any creditor to discriminate with
respect to any credit transaction on the basis of marital status. 15
U.S.C. § 1691(a) (1). It also authorizes the Board of Governors of
the Federal Reserve System (Board) to prescribe regulations, 15 U.S.C.
§ 1691b, and creates a private right of action for declaratory and
equitable relief and for actual and punitive damages. 15 U.S.C. §
1691e.
In order to carry out the purposes of the ECOA, the Board promulgated
the regulations codified at 12 C.F.R. §§ 201.1 et seq.
Section 202.7(c) (1) provides that a creditor shall not terminate the
account of a person who is contractually liable on an existing open end
account on the basis of a change in marital status in the absence of
evidence of inability or unwillingness to repay. Under certain
circumstances, a creditor may require a reapplication after a change in
the applicant's marital status. 12 C.F.R. § 202.7(c) (2).
Mrs. Miller's Amex card was cancelled after her marital status changed
from married to widowed. Under § 202.7(c) (2), Amex could have
asked her to reapply for credit, but instead it first terminated her
card and then invited reapplication. There was no contention or
evidence that her widowhood rendered Mrs. Miller unable or unwilling to
pay, indeed, Amex's prompt issuance of a new card to her indicates that
she was considered creditworthy.
Amex has argued that there was no violation of the ECOA for three
reasons: that Section 202.7(c) was beyond the scope of the Board's
authority, that Mrs. Miller was not "contractually liable on an
existing open end account" within the meaning of § 202.7(c), and
that the termination did not constitute discrimination on the basis of
marital status because it occurred pursuant to a policy of automatic
cancellation of all supplementary cardholders whether they were widow,
widower, sibling, or child of the basic cardholder. We hold that §
202.7(c) was within the scope of the Board's authority under the ECOA,
and that Mrs. Miller was within the protection of the regulation.
I. Authority for Section 202.7(c)
We reject Amex's contention that the Board exceeded its authority in
promulgating § 202.7(c), the regulation forbidding credit
terminations "on the basis of" marital status. The Board is required to
"prescribe regulations to carry out the purposes of [the ECOA]." 15
U.S.C. § 1691b. Although the ECOA outlaws credit "discrimination,"
the meaning of that term must be defined with reference to the purposes
of the Act. The history of the ECOA shows that it was meant to reach
credit decisions based on factors such as sex, marital status, and race
which are irrelevant to creditworthiness. The Senate Report
accompanying the 1976 amendments to the ECOA characterizes decisions
made on the basis of such characteristics as "irrational
discrimination."
In passing the ECOA, Congress contemplated that the Board would have
significant flexibility in its enforcement authority. A definition of
discrimination was deleted from the final bill in order to leave broad
flexibility in the Board to specify what conduct would be prohibited.
Section 2.207(c) is directly addressed to one of the evils that the
ECOA was designed to prevent: loss of credit because of widowhood. It
was therefore within the discretion allowed the Board to define
termination or credit as a result of the death of a spouse as credit
discrimination.
II. Application of Section 202.7(c)
A. Coverage of the
Regulation: Contractual Liability on an Open End Account
By its terms, § 202.7(c) reaches only terminations of existing
open end accounts on which the creditholder is contractually liable.
"Open End Credit" is defined in 12 C.F.R. § 202.2(w) as "credit
extended pursuant to a plan under which a creditor may permit an
applicant to make purchases or obtain loan[s] from time to time. . . ."
"Contractually liable" means "expressly obligated to repay all debts
arising on an account by reason of an agreement to that effect." 12
C.F.R. § 202.2(i). Amex has argued that the reference to persons
"contractually liable" was meant to exclude spouses who are only
"users" of accounts. The Federal Reserve Board's comments, made when
the "contractually liable" phrase was added in 1975, indicate that the
phrase was designed to exclude a "user" who might be liable for a
specific debt charged to a spouse's account, "but [who] is not liable
on the contract creating the account."
Mrs. Miller was not, however, merely a user of her husband's basic
account. She was personally liable under the contract creating her
supplementary account for all debts charged on her card by any person.
For example, Mrs. Miller would have been personally liable for even
charges made on her supplementary card by her husband, the basic
cardholder.
We are unconvinced by Amex's argument that the supplementary account
was created by the agreement establishing Mr. Miller's basic card
account. Mrs. Miller's supplementary card was issued after the basic
card account had been set up, and pursuant to a separate application
which had to be signed by Mrs. Miller as well as by her husband. If the
basic card account had already created the supplementary account, such
prerequisites to a supplementary card, especially Mrs. Miller's
agreement to be liable, would be unnecessary.
Amex's cardholder agreement provides that "by either signing, using or
accepting the Card, you will be agreeing with us to everything written
here" and that "if you are a Supplementary Cardmember, you are liable
to us for all Charges made in connection with the Card issued to you. .
. ." This language made Mrs. Miller "contractually liable" for all
debts on her supplementary account.
Other differences between Mrs. Miller's card and her husband's also
persuade us that her supplementary account was in substance a separate
account from her husband's basic one. Her card was issued in her own
name, carried an additional issuance fee, and had a different account
number and expiration date from Mr. Miller's card.
B. Termination on
the Basis of Marital Status: Proof of Credit Discrimination
The ECOA outlaws credit discrimination on the basis of marital status.
The regulations proscribe particular adverse actions, including account
terminations, which violate the Act if performed on the basis of
marital status. Amex argues that it was entitled to summary judgment
because Mrs. Miller did not attempt to show that Amex's policy of
cancelling all supplementary cardholders on the death of the basic
cardholder either was adopted with discriminatory intent or had an
adverse impact on widows as a class. In light of the purposes of the
ECOA, we do not think such a restrictive interpretation of the
regulation is warranted.
The ECOA was meant to protect women, among others, from arbitrary
denial or termination of credit. It establishes "as clear national
policy that no credit applicant shall be denied . . . on the basis of
characteristics that have nothing to do with his or her
creditworthiness." Equal Credit Opportunity Act Amendments of 1976.
In Anderson, we held that there was credit "discrimination" within the
meaning of the ECOA when a regulation promulgated under the ECOA was
violated. No showing of any specific intent to discriminate was
required. As another court has noted, not requiring
proof of discriminatory intent is especially appropriate in analysis of
ECOA violations because "discrimination in credit transactions is more
likely to be of the unintentional, rather than the intentional,
variety." Cherry v. Amoco Oil Co., 490 F. Supp. 1026, 1030 (N.D. Ga.
1980).
The conduct here was squarely within that prohibited by §
202.7(c). Mrs. Miller's account was terminated in response to her
husband's death and without reference to or even inquiry regarding her
creditworthiness. It is undisputed that the death of her husband was
the sole reason for Amex's termination of Mrs. Miller's credit. Amex
contends that its automatic cancellation policy was necessary to
protect it from non-creditworthy supplementary cardholders. The
regulations, however, prohibit termination based on a spouse's death in
the absence of evidence of inability or unwillingness to repay. Amex
has never contended in this action that the death of her husband
rendered Mrs. Miller unable or unwilling to pay charges made on her
card. The fact that the cancellation policy could also result in the
termination of a supplemental cardholder who was not protected by the
ECOA, such as a sibling or friend of the basic cardholder, does not
change the essential fact that Mrs. Miller's account was terminated
solely because of her husband's death. The interruption of Mrs.
Miller's credit on the basis of the change in her marital status is
precisely the type of occurrence that the ECOA and regulations
thereunder are designed to prevent.
We hold that the undisputed facts show, as a matter of law, that Amex
violated the ECOA and regulations thereunder in its termination of Mrs.
Miller's supplementary card. For this reason, we reverse the district
court's grant of summary judgment for Amex and instruct that partial
summary judgment should be awarded to Mrs. Miller on the issue of
liability. The case is remanded for further proceedings consistent with
this opinion.