Grand Rapids, Michigan, Civil Lawsuit Attorney

When Banks Break the Law.

In the last ten years, banks and lending institutions have become less friendly and more predatory. Gone are the days when a bank would stick by a troubled business and help it through hard times. Nowadays, as soon as the business experiences trouble, the bank is the first to cut and run. A bank can exacerbate a business's troubles by restricting its credit and then refuse to renew a line of credit. The "friendly" bank of the last 20 years that automatically renewed its line of credit year after year suddenly advises it will no longer will do so. Then the business is handed a 90-day Forbearance Agreement.

Conventional wisdom is that banks are not obligated to lend money — this is wrong

Banks exist to receive and lend money; they are a conduit of money from the Federal Reserve into the local economy. Banks are supposed to invest in local businesses and the communities; small business creates 95% of the jobs in this country. Unfortunately, many businesses think they have no choice but to to sign a forbearance agreement.This is wrong.

 In our experience, businesses that sign a forbearance agreement will be unable to obtain a line of credit elsewhere. Business owners must realize that if their bank of 15 years will no longer lend to them - a new bank won't either. In most circumstances, signing a forbearance agreement is the first step down a fast track to closure or bankruptcy.

We strongly suggest that you not sign any forbearance agreement until you have first talked to a knowledgeable attorney. Forbearance agreements are always one-sided in favor of the bank, and you waive all of your rights to challenge the bank’s action and to sue them for bad faith and misdealing if you sign. In our experience, those who did not sign a forbearance agreement remained in business.

Lender Liability, Good Faith and Fair Dealings.

Banks and lending institutions can be sued for failing to act in good faith, failing to fairly treat its loan customers, and for misdeeds. Do not simply assume that it is impossible to take on a big bank. There are numerous federal and state laws that regulate banks. Banks and lending institutions are also subject to the same contract and common law rules as any other business; they must always act in a commercially reasonable manner, in good faith, and can be liable for lender liability if they don't. 

The law requires that all parties to a contract (i.e. a loan agreement) act in good faith and fair dealings. That means that each side MUST act in a commercially reasonable manner, act in good faith, and fairly deal or treat the other party. Too often banks think this law does not apply to them, that they can act in any way they please. This is wrong. If they fail to act in good faith, if they fail to fairly treat you, if they fail to act in a commercially reasonable manner, they can be sued for lender liability. 

Equal Credit Opportunity Act and Spousal Signatures.

In the 1970s, Congress passed the Equal Credit Opportunity Act, which mandated certain criteria banks can and cannot use when making loans. The ECOA and Regulation B, forbids a bank from asking or requiring a non-involved wife to sign a personal guaranty for a loan to her husband's business (and visa versa). A bank will advise that it will not make a loan or extend credit unless the wife signs a personal guaranty. This is against the law. So long as the husband or the business is creditworthy and the wife is not involved in the business, a bank cannot ask nor require that a wife personally guaranty the company debt. 

There are exceptions in cases where a spouse is actively involved in the business or where the applicant spouse or business is not credit worthy. However, in most cases it is against the law to ask a spouse to sign a personal guaranty for a loan or line of credit. 

Unfortunately, most people are unaware of this prohibition. To this day we continue to see cases where banks have ignored this prohibition, and have required that a non-involved spouse sign a personal guaranty for the loan. The reason that banks do this is simple. By making both spouses sign a personal guaranty, if there is a default, the bank can attach all of the couple's assets, including the home which would otherwise be out of reach. The personal guaranty from the wife makes all family assets available for seizure, including her paycheck.

We have seen family homes foreclosed and sold by calloused banks whose only focus is the "almighty dollar," completely indifferent to the destruction caused. We have seen them go after the wages of an innocent spouse who didn't borrow the money, didn't benefit from the loan, and had nothing to do with the business. Sadly few in the civil litigation arena truly understand the ECOA prohibition or know how to use it as a defense.

We have handled these cases. We know how to force a bank to release the innocent spouse from its clutched talons. It's not easy – but it can be done.

Unless the spouse is a member, officer, shareholder, or involved in the company, asking them to cosign a business loan or to sign a personal guaranty for the loan is strictly forbidden. The Equal Credit Opportunity Act (ECOA) has strict requirements that banks and lending institutions must obey. A violation of the ECOA can result in the Promissory Note being declared null and void, collection actions terminated, and the offending bank required to pay actual attorney fees, actual damages, and even punitive damages.

There are many state and federal laws that regulate the granting of credit and the termination of a line of credit. Attorney Bruce Alan Block is experienced in handling cases where a business credit line has been arbitrarily canceled or terminated. He does not believe a bank can arbitrarily deny you access to credit. He is knowledgeable in this area of the law. Put his experience to work for you.

The banks have lawyers advising them, shouldn’t you?

If your line of credit or equity was canceled by your banking institution, or if you were asked to cosign or guaranty a business loan for your spouse, you should talk with us to make sure your rights were not violated. Contact our West Michigan civil litigation lawyer for a consultation. Call (616) 458-8585.

Bruce Alan Block, PLC

Attorney and Counselor at Law
4251 Cascade Road SE, Grand Rapids, Michigan 49546
Phone: (616) 458-8585

Serving Clients throughout Western Michigan, in Grand Rapids, Ada, East Grand Rapids, Kentwood, Cascade, Wyoming, Byron Center, Wyoming, Caledonia, Cascade, Rockford, Holland, Grand Haven, Grandville, Kent, Barry, Ottawa, Muskegon and Ionia County. We represent college students from Calvin College, Aquinas, Grand Valley State University, Cornerstone College, Grand Rapids Community College, Michigan State University, and Western Michigan University