In a significant development, the Consumer Financial Protection Bureau (CFPB or Bureau) has finally reached a settlement with Townstone Financial, Inc. (Townstone) in the first redlining case brought against a nonbank mortgage lender and broker. This settlement follows the Seventh Circuit Court of Appeals’ pivotal decision in favor of the CFPB that expanded the Equal Credit Opportunity Act (ECOA) to include protections for prospective applicants who may be discouraged from applying for credit. The settlement marks a resolution of protracted litigation that began in 2020 when the CFPB sued Townstone by accusing the company of redlining practices.
As discussed here, on July 11, 2024, the Seventh Circuit reversed the district court’s decision dismissing the CFPB’s case against Townstone. The CFPB had accused Townstone of discouraging prospective African American applicants from applying for mortgages in the Chicago metropolitan area through derogatory statements made in podcasts and radio shows. Townstone moved to dismiss the complaint, arguing that the ECOA only prohibits discrimination against “applicants.” The district court agreed, finding that “the word ‘applicant’ is used twenty-six times in the statute, and the statute does not prohibit or discuss conduct prior to the filing of an application.” The appellate court reversed the decision, holding that the ECOA does indeed authorize the imposition of liability for the discouragement of prospective applicants and that the Bureau has broad authority to prohibit discrimination to combat redlining practices by financial services companies. Judge Ripple, writing for the court, stated, “When the text of the ECOA is read as a whole, it is clear that Congress authorized the imposition of liability for the discouragement of prospective applicants.” The case was thus remanded to the district court for further proceedings.
However, on November 1, 2024, the CFPB filed a proposed order to resolve the case after reaching a settlement with Townstone. The order, if entered by the court, would prohibit Townstone from engaging in any actions that violate the ECOA and require the company to pay a $105,000 penalty to the CFPB’s victims relief fund. In a press release announcing the settlement, CFPB Director Rohit Chopra stated, “The CFPB’s lawsuit against Townstone Financial included a major appellate court victory that makes clear that people are protected from illegal redlining even before they submit their application. The CFPB will continue to prosecute those who engage in modern-day redlining.”
