Saying that the bureau under the Biden Administration abused its power, the CFPB is seeking to reverse its settlement with Townstone Financial.
“CFPB abused its power, used radical ‘equity’ arguments to tag Townstone as racist with zero evidence, and spent years persecuting and extorting them – all to further the goal of mandating DEI in lending via their regulation by enforcement tactics,” said CFPB Acting Director Russell Vought.
Townstone operated as a nonbank residential mortgage creditor and broker based in Chicago. In its initial complaint against Townstone filed in July 2020 in the U.S. District Court for the Northern District of Illinois, the CFPB asserted that 90% of Townstone’s mortgage origination activity was in the Chicago metropolitan area. The CFPB also asserted that, from 2014 through 2017, Townstone ranked in the top 10 percent of mortgage companies that drew applications from the Chicago metropolitan area, receiving an average of 740 mortgage loan applications each year, the bureau said.
The bureau alleged that Townstone violated the Equal Credit Opportunity Act (ECOA) and Regulation B by discouraging potential applicants because of their race or the racial composition of their majority African-American neighborhoods. This was the first redlining complaint ever made against a nonbank mortgage company. A central basis of the CFPB claim was the Regulation B provision that provides “A creditor shall not make any oral or written statement, in advertising or otherwise, to applicants or prospective applicants that would discourage on a prohibited basis a reasonable person from making or pursuing an application.”
Townstone filed a motion to dismiss the lawsuit in October 2020. A key argument made by Townstone was that while Regulation B refers to “prospective applicants,” the ECOA only refers to “applicants” and, therefore, a redlining claim cannot be brought under the ECOA because such a claim focuses on persons who are not yet applicants. The district court agreed with Townstone in a February 2023 opinion and dismissed the lawsuit.
In April 2023 the CFPB appealed the decision to the U.S. Court of Appeals for the Seventh Circuit. In a July 2024 opinion that we criticized the Seventh Circuit reversed the district court’s ruling, finding that redlining claims may be brought under the ECOA because the statute prohibits the discouragement of prospective applicants for credit.
While Townstone had the options of seeking a rehearing en banc before the entire Seventh Circuit, petitions for which are rarely granted, or seeking review by the U.S. Supreme Court, which is a significant undertaking, it settled with the CFPB in November 2024.
Under the settlement, Townstone is prohibited from taking any actions in connection with offering or providing mortgage loans that violate the ECOA and was required to pay a $105,000 penalty to the CFPB’s victims relief fund.
Now, the bureau is seeking to reverse the settlement.
In a release announcing the filing to vacate the settlement, the CFPB stated that the bureau under former Director Rohit Chopra used a “redlining screen” based on an arbitrary number of mortgages. . “[The] CFPB [then] set out to destroy a small Midwest firm with about ten employees and a radio program called Townstone Financial,” the bureau said. “After a thorough review, the CFPB is seeking to make Townstone whole by returning the six-figure penalty they were forced to pay.”
Acting CFPB Director Russ Vought stated that “CFPB abused its power, used radical ‘equity’ arguments to tag Townstone as racist with zero evidence, and spent years persecuting and extorting them – all to further the goal of mandating DEI in lending via their regulation by enforcement tactics.”
CFPB Senior Advisor Dan Bishop added that “This was a flagrant misuse of government resources to destroy a small business that did nothing wrong.” He continued, “For the crime of protected political speech, this firm was targeted and harassed for years by this rogue agency. We are righting this wrong and protecting the First Amendment.”
Vought hinted that the agency may take similar actions in the future. “The more we uncover at CFPB, the more we see how this agency was weaponized against targeted Americans,” he said.
[View source.]
