MortgagePolitics & Money

Townstone Financial files motion to dismiss CFPB redlining lawsuit

Lender says CFPB attempted to expand ECOA to "prospective applicants"

On Monday, Townstone Financial Inc., a Chicago-based nonbank retail mortgage lender, filed a motion to dismiss a lawsuit the Consumer Financial Protection Bureau filed against the company in July.

The July 15 complaint alleged that Townstone violated the Equal Credit Opportunity Act (ECOA) and Regulation B by engaging in discriminatory mortgage-lending practices and that those violations also constituted violations of the Consumer Financial Protection Act.

Townstone moved to dismiss the lawsuit based on expressive action that the CFPB attempted to expand the reach of the ECOA to “prospective applicants,” which the company said is not regulated under ECOA.

The CFPB’s suit alleges that, from 2014 through 2017, Townstone engaged in practices that illegally discouraged prospective African-American applicants from applying to Townstone for mortgage loans as well as practices that discouraged prospective applicants living in African-American neighborhoods in the Chicago MSA from applying to Townstone for mortgage loans.

“The scope of liability created by an expansion of ECOA to include ‘prospective applicants’ is unreasonable and unworkable. Such an absurd result cannot have been intended by Congress,” the motion to dismiss states.

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According to the motion, the complaint also attempted to expand ECOA by imposing requirements to target advertising to specific racial or ethnic groups after the bureau accused Townstone of redlining violations based on political speech and social commentary broadcast on a conservative radio station. The CFPB’s complaint alleged that statements made about crime in Chicago and support for police discouraged African Americans from applying for loans with Townstone.

In response, the dismissal cited the first amendment, stating the CFPB sought to punish Townstone based on its speech surrounding the issue of crime in Chicago and the benefits of policing – issues the company says it is well versed in and has every right to comment on.

The dismissal also states that the CFPB attempted to expand ECOA by imposing a demographic hiring quota as well as a requirement to have business success with specific racial or ethnic groups. In response, Townstone reiterated that ECOA’s scope is limited to regulating behavior between creditors and applicants.

“The Bureau seeks to redefine ECOA obligations on a case-by-case litigation basis. The result is predictably unpredictable,” the motion said. “As it is, no mortgage lender has any certainty regarding how to comply with the Bureau and Reg. B’s alleged affirmative obligations. Further, any ‘business success’ test is tantamount to a ‘disparate impact’ theory of discrimination, which is unavailable under ECOA. Congress never intended such a result.”

Townstone is represented by James Bopp, Jr., founder of The Bopp Law Firm in Terre Haute, Indiana and most famous for his role in the landmark Citizens United vs. the Federal Election Commission case. That case, which the Supreme Court ruled on in 2010, overturned restrictions on spending by corporations and labor unions to support or defeat political candidates. In 2019 Bopp was retained as special counsel by the campaign to re-elect President Donald Trump.

Following the original complaint against Townstone, Bopp charged in a written statement that “The CFPB has long been controversial and just lost a case in the United States Supreme Court for being improperly structured. They have been waiting years to file a case on the eve of a Presidential election to damage conservative voices. This is another federal agency weaponized to attack conservatives that needs to be stopped.”

Townstone’s counsel alleged that the case “will have chilling effects on free speech for those in the financial services industry” leading up to the November presidential election.

HousingWire has reached out to the CFPB for comment and will update the story with that information.

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