The CFPB has filed a Notice of Appeal with the U.S. Court of Appeals for the Seventh Circuit from the district court’s decision in the CFPB’s enforcement action against Townstone Mortgage (Townstone).  In the case, the district court ruled that a redlining claim may not be brought under the Equal Credit Opportunity Act (ECOA) because the statute only applies to applicants.

The CFPB’s lawsuit against Townstone represented the Bureau’s first ever redlining complaint against a nonbank mortgage company.  In its complaint, the CFPB alleged violations of the ECOA and Consumer Financial Protection Act.  The U.S. District Court for the Northern District of Illinois granted Townstone’s motion to dismiss the CFPB’s complaint on the grounds that the ECOA applies to applicants and not to prospective applicants.  The district court based its decision on the ECOA’s plain text which, in the court’s view, “clearly and unambiguously prohibits discrimination against applicants, which the ECOA clearly and unambiguously defines as a person who applies to a creditor for credit.”

In appealing the decision, the CFPB appears to be taking a significant risk. The Seventh Circuit could agree with the district court based on the plain text of the ECOA, and the very different language that Congress used in the Fair Housing Act to address redlining.  If the Seventh Circuit rules in favor of the CFPB, Townstone could seek review by the Supreme Court where, if the Court agreed to hear the case, the CFPB would likely face an uphill battle given the Court’s conservative majority.

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