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Townstone Financial Responds to CFPB's Redlining Suit Appeal

Christine Stuart
Aug 24, 2023
Courtroom Pic/Credit: Vladek

Industry attorneys forecast uphill battle for bureau which lost at district court level.

Townstone Financial has issued a rejoinder to the Consumer Financial Protection Bureau's (CFPB) appeal in the ongoing redlining lawsuit that the mortgage lender has faced since 2020.

In an official response submitted on Aug. 14,  the Chicago-based mortgage lender contended that the Seventh Circuit Court of Appeals should uphold the U.S. District Court for the Northern District of Illinois' decision. This prior ruling favored Townstone by rejecting the bureau's argument that an anti-discrimination law safeguards prospective borrowers.

At the time, the lower court's verdict underscored that the Equal Credit Opportunity Act exclusively pertains to home loan applicants and does not extend to potential applicants.

"It does not refer to hypothetical persons who imagine one day requesting credit," Townstone's attorneys wrote in their brief. 

The CFPB filed the lawsuit in July 2020 against Townstone Financial Inc. and its owner, Barry Sturner, claiming he and the company violated the federal Equal Credit Opportunity Act (ECOA) by making disparaging remarks about prospective loan applicants on the lender’s weekly radio show and podcast.

While the CFPB opted not to provide comments on the matter, the Mortgage Bankers Association, in an amicus brief, defended Townstone and said, "The Bureau’s expansive interpretation of Regulation B puts [MBA] members in an impossible position of trying to follow a rule that has no defined boundaries."

"In the [CFPB's] eyes, any individual could apparently be a potential applicant to a lender for credit. And in the bureau’s eyes, any statement made by a lender could be unpalatable to a prospective applicant and thus construed as an effort to discourage the prospective applicant. This wholesale ambiguity renders 12 C.F.R. § 1002.4(b) impossible to comply with," Attorney Matthew P. Previn of Paul Hastings LLC wrote. 

The legal battle began when the government watchdog initiated a lawsuit accusing Townstone of illegal redlining, alleging the mortgage company discouraged potential Black applicants from applying for home loans.

The CFPB's complaint centered on claims that between 2014 and 2017, Townstone's CEO and president made statements that discouraged individuals residing in Black neighborhoods within Chicago from seeking mortgage loans from the company.

Among these alleged remarks was the CEO's characterization of the South Side of Chicago as a "hoodlum weekend" between Friday and Monday, further suggesting that the police were the sole barrier preventing it from evolving into a "real war zone."

In February, Judge Franklin Valderrama of the Illinois federal court ruled in favor of Townstone. The case was dismissed with prejudice, which precluded the CFPB from re-filing the complaint. However, the bureau retained the right to challenge the verdict on appeal. On April 3, the CFPB notified the Seventh Circuit Court of Appeals of its intent to do so without delving into the specifics of its rationale for challenging Judge Valderrama's ruling.

Aug 24, 2023
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