ECOA Class Action Centers on Huntington Learning Centers’ ‘Spousal Guaranty’ in Franchise Agreements

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A Michigan resident alleges in a proposed class action suit that so-called spousal guarantees contained in Huntington Learning Centers’ franchise disclosure documents provided to prospective franchisees violate the Equal Credit Opportunity Act (ECOA).

The plaintiff was, at all times relevant to this litigation, married to a non-party to this lawsuit around March 2017 when he began discussions with Huntington Learning Centers about entering into a franchise relationship. The complaint points out that neither the plaintiff nor his spouse ever intended for the latter to have any ownership of nor involvement in operating a Huntington Learning Center franchise. Upon being asked in the defendant’s franchise application whether he would invest in the franchise himself or with a partner, the plaintiff responded “self,” the lawsuit says.

After being provided with the Huntington’s franchise disclosure documents in April 2017, the plaintiff, later that month, spoke with the defendant’s director of franchise development concerning the company’s requirement that his spouse sign a personal guarantee with regard to in-house financing, the suit explains. The woman reportedly stated, “Yes she will need to sign absolutely.”

In June 2017, the plaintiff allegedly submitted a “Request to be Awarded a Huntington Learning Center Franchise” to the defendant that asked that his spouse be exempted from any mandatory personal guaranty. The case claims the defendant’s chief operating officer then sent the plaintiff an email stating he “must have the standard paperwork and signatures to proceed.”

After the plaintiff informed the defendant that same month that his spouse refused to sign any guaranty, the defendant’s director of franchise development reportedly sent the man a “Limited Guarantee” for his spouse that the lawsuit says ostensibly capped the principal amount of her monetary obligations at $35,000. After this incident, the complaint says, the plaintiff withdrew his request for a Huntington Learning Center franchise.

According to the complaint, the ECOA states a creditor shall not make any oral or written statement to applicants or prospective applicants “that would discourage on a prohibited basis a reasonable person from making or pursuing an application.” The plaintiff argues the Huntington Learning Centers erred in failing to make individualized inquiries into the creditworthiness of franchise applicants while mandating spousal guarantees from every applicant regardless of non-marital income or assets.