On July 11, the U.S. Court of Appeals for the Seventh Circuit reversed a district court’s decision to dismiss the CFPB’s claims that a Chicago-based nonbank mortgage company and its owner violated ECOA by engaging in discriminatory marketing. As previously covered by an Orrick Insight, the CFPB initiated a redlining enforcement action against the company in 2020, alleging defendants discouraged African Americans from applying for mortgage loans from the company and redlined African American neighborhoods in Chicago. Last year, the U.S. District Court for the Northern District of Illinois dismissed the CFPB’s action (covered by InfoBytes here). On appeal, the CFPB argued that its interpretation of ECOA is supported by the historical context of Regulation B and has not been contested by Congress (covered by InfoBytes here).
The 7th Circuit noted that Congress intended to allow for penalties in cases where prospective applicants are discouraged. Therefore, the court stated that Regulation B's rule against deterring prospective applicants aligns with both the text and the intent of the ECOA. In determining whether Regulation B’s prohibition on the discouragement of prospective applicants is consistent with ECOA, the court reasoned that it “cannot constrain artificially the ECOA to a single provision” and rather, must review it as a whole. Applying this standard, the court held that ECOA prohibits “not only outright discrimination against applicants for credit, but also the discouragement of prospective applicants for credit.” In remanding the case, the 7th Circuit left it to the district court to determine whether the defendants’ alleged conduct was prohibited discouragement under ECOA, in addition to whether defendants’ argument that their allegedly unlawful conduct is protected by the First Amendment’s guarantee of free speech.
Of note, while the parties’ briefing before the 7th Circuit addressed the then-effective Chevron doctrine, the 7th Circuit noted that its decision treated the ECOA issue as “a question of statutory interpretation subject to our de novo review” and took into account the recent Supreme Court ruling in Loper Bright Enterprises v. Raimondo, No. 22-451, 603 U.S. ___ (2024) overturning Chevron (covered by InfoBytes here).
