COLUMBUS, Ohio--Credit unions saw a crucial win in court this week as the Ohio Supreme Court, in a six-to-one decision, overturned a lower court ruling that reversed longstanding industry precedent and practice regarding guarantors and when payments are due, America's Credit Unions reported.
Huntington National Bank v. Schneider involved a $77-million commercial loan. The lower court ruled that Huntington (the lender) was required to disclose information about the risks associated with the debt and failed to do so, ACU said.
In reversing this decision, the Ohio Supreme Court found, “under Ohio’s contract law, parties engaging in an arm’s-length transaction, without affirmatively establishing a relationship of special trust or confidence between the parties, do not owe one another a duty to disclose unknown facts that materially increase risk to the other party. And this is true regardless of whether one of the parties is a guarantor or surety. As a result, any question whether Ohio contract law ought to require a duty to disclose for sureties or guarantors is a decision that should be left to the General Assembly."
America’s Credit Unions, the Ohio Credit Union League, and banking organizations filed a brief on this case with the Ohio Supreme Court in June 2024, stating that the district court decision would massively change the lending industry by rolling back longstanding precedent and industry practice to hold that guarantors who personally guarantee payments when due and payable are sureties instead.
This would ultimately make it more difficult for credit unions to lend money to underserved areas, small businesses, startup expansions, and other high-risk/high-reward opportunities, ACU explained.