The Consumer Financial Protection Bureau (CFPB) will appeal a redlining lawsuit it lost against the nonbank retail lender Townstone Financial Inc. and its founder Barry Sturner.
The decision comes two months after Judge Franklin Valderrama in the U.S. District Court for the Northern District of Illinois, Eastern Division, ruled in favor of Townstone and Sturner on a motion to dismiss with prejudice the redlining lawsuit.
“The Bureau seeks review of a final judgment entered by the district court on February 3, 2023,” a document filed by the CFPB with the Illinois district court on Monday states. “That judgment dismissed the Bureau’s complaint, thereby denying all relief sought by the Bureau.”
The CFPB, which is seeking the review of the case in the U.S. Court of Appeals for the Seventh Circuit, declined to comment on active litigation.
Steve Simpson, a senior attorney at Pacific Legal Foundation who represents Townstone and Sturner, wrote to HousingWire, “We look forward to the opportunity to establish on appeal that CFPB went far beyond its statutory authority in the Townstone case.”
The case started in July 2020, when the CFPB accused Townstone of violating the Equal Credit Opportunity Act (ECOA), Regulation B and the Consumer Financial Protection Act.
The lawsuit brought to light comments made by Sturner on a radio show. The CFPB alleged that he discouraged prospective African American borrowers in the Chicago metropolitan area from applying for mortgages with the lender.
Enacted almost 50 years ago, the ECOA states that it is unlawful for any creditor to “discriminate against any applicant” based on race, color, religion, among others. The U.S. Congress directed the Federal Reserve Board – and, consequently, the CFPB – to regulate the ECOA, which resulted in Regulation B.
“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,” Regulation B states.
Defendants said the ECOA regulates behavior toward credit applicants, not “prospective applicants who have not yet applied for credit.” Judge Valderrama agreed. “The CFPB cannot amend its pleading in a way that would change the language of the ECOA,” he wrote.
“CFPB’s claims that Townstone Financial discouraged prospective applicants were unfounded from the beginning,” Simpson said. “No borrower has ever complained about Townstone’s lending practices or statements on the radio.”