A federal judge in Illinois ruled in favor of Townstone Financial Inc. and on a motion to dismiss with prejudice a redlining lawsuit filed by its owner, Barry Sterner, consumer financial protection bureau (CFPB).
Thank you for reading this post, don't forget to subscribe!In July 2020, the CFPB filed a lawsuit accusing the non-bank retail lender of discouraging potential African American borrowers from applying for mortgages in the Chicago metropolitan area.
Townstone filed a motion to dismiss in October 2020, which was granted on Friday in the US District Court for the Northern District of Illinois, Eastern Division, by Judge Franklin U. Valderrama accepted.
The CFPB declined to comment on the decision, which it may appeal.
In early 2014, Townstone marketed his services through his radio show and podcast. The show brought to light comments made by Sterner, referring to majority-African-American neighborhoods as “woods,” “scary,” and places where you “drive too fast,” and “you don’t see anyone” or lock on someone’s eyes.
In a statement to HousingWire, Sterner said, “Townstone does not discriminate and no one has ever complained about anything Townstone has said on his radio show.”
The lawsuit also includes data that shows Townstone attracted approximately 2,700 applicants from 2014 to 2017, of which only 1.4% of the total came from African American residents in the Chicago metropolitan area. During the same period, Townstone received an average of five or six applications each year for properties in majority African American neighborhoods, despite such neighborhoods accounting for 13.8% of the Chicago metropolitan area.
According to the CFPB, the lender’s acts and practices allegedly violated the Equal Credit Opportunity Act (ECOA), Regulation B and the Consumer Financial Protection Act.
The ECOA, enacted in 1974, states that “it shall be unlawful for any creditor to discriminate against any applicant with respect to any aspect of any transaction – race, colour, religion, national origin, sex or marital status.” depending on, or age.
Congress directed federal Reserve BoardConsequently, the CFPB, to make rules to carry out the objectives of the ECOA.
This resulted in Regulation B, which states, “A creditor shall not make any oral or written statement to applicants or potential applicants, whether in advertisement or otherwise, which would discourage a reasonable person from making or pursuing an application on prohibited grounds.”
According to Townstone, the CFPB, through its lawsuit, “makes an unwarranted attempt to expand the ECOA’s reach beyond the “express” and “explicit” language of the law.”
Respondents contend that the ECOA regulates the treatment of credit applicants. It does not regulate dealings with “prospective applicants who have not yet applied for credit”.
In his ruling, Judge Valderrama stated, “The CFPB cannot amend its petition in a way that changes the language of the ECOA.”
Steve Simpson’s Pacific Legal Foundationwho acted as counsel for Townstone, said in a statement to HousingWire that “no agency, including the CFPB, has the authority to rewrite a law prohibiting discrimination against credit applicants that requires non-discriminatory conduct and seeks to restrict speech.”
“Unfortunately, we had to spend years fighting the CFPB over a case that should never have been brought. Hopefully, the court’s decision will prevent others from having to endure what we have,” Sterner said.
