Townstone Financial, a Chicago-based nonbank retail mortgage lender, is firing back at a lawsuit filed this week by the Consumer Financial Protection Bureau.
On Wednesday, HousingWire reported on CFPB’s complaint, which alleges 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.
Specifically, the bureau accused Townstone of “redlining” violations based on political speech and social commentary broadcast on a conservative radio station. The complaint alleged that statements made about crime in Chicago and support for police discouraged African Americans from applying for loans with Townstone.
In a press release issued Thursday, Townstone’s co-counsel argues that the bureau took issue with the fact that the company’s CEO and owner Barry Sturner’s weekly radio show was broadcast on a conservative talk radio station.
James Bopp, Jr. of The Bopp Law Firm of Terre Haute, Indiana, and co-counsel for Townstone, charged in a written statement that the CFPB is using this case “to drive all banking and mortgage companies away from advertising on conservative talk radio and to punish mainstream conservative political speech and social commentary.”
“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,” Bopp continued.
According to an August 2019 article by The Title Report, Townstone Financial had advertised on a number of different radio stations in the Chicago market, including three AM stations. The article stated: “At issue in the CFPB’s investigation, however, are Townstone’s advertising on news talk station AM-560 and the company’s own podcast, which is similar to the radio show.”
That article went on to quote a tweet from Sturner in which he reportedly tweeted at President Donald Trump through the Townstone account.
“We discussed the crime on the south side of Chicago on our public radio which you too have discussed, and CFPB said that statement was also against fair lending act laws,” he wrote. “Need your help, please! 100% factual. Cant state facts any longer in America unless NY Times agrees?”
Townstone also alleges that it decided to advertise on AM radio “specifically to reach as broad a geographic area as possible.”
“It is widely known that AM radio’s signal strength is better than FM radio, and these AM radio stations’ coverage maps reach as far as neighboring states,” its counsel said. “As a result, there cannot be a legitimate claim of actual, physical ‘redlining.’ ”
Townstone also claims it made active efforts to reach minority, including African American, audiences in the past. According to its counsel, prior to focusing on an all-AM radio strategy, Townstone previously advertised on two FM radio stations in 2014, including one in Chicago that played popular music, and one that played hip-hop music to a predominately African American audience in Hammond, Indiana.
The CFPB’s suit alleges that, from 2014 through 2017, Townstone drew almost no applications for properties in African-American neighborhoods located in the Chicago-Naperville-Elgin Metropolitan Statistical Area (Chicago MSA) and few applications from African Americans throughout the Chicago MSA.
In response to that, Townstone hired Chicago-based CrossCheck Compliance LLC, which it said found that Townstone was not an outlier compared to its “peer” institutions.
“Peer analysis results indicated that Townstone was not an outlier, having applications/origination percentages within the ranges of the identified peers for both substantial minority areas and South Chicago Majority African American Census Tracts,” Townstone alleges.
Also, Townstone claims the representation of its being in the top 10% of lenders is misleading. Its counsel said: “For the period, based on public HMDA data, Townstone received only about .16% to .17% of all applications in the Chicago MSA. Because of the substantial number of lenders in the MSA with very few applications, it caused lenders with any more than a minuscule amount of applications to be skewed high in ranking. The CFPB attempts to characterize Townstone as a large lender with a substantial market share in the Chicago MSA when in reality it is a small, privately owned and operated local lender with a small market share.”
Townstone was a six-employee mortgage lender until 2018. Between 2014 and 2017, Townstone averaged about $177 million in loan volume per year. Townstone downsized to become a mortgage broker in 2018 and now only has two employees, according to its counsel.
Overall, this case is notable in that it could set a precedent for other creditors and lenders in terms of where and how they choose to advertise.
Townstone’s counsel alleges that the case “will have chilling effects on free speech for those in the financial services industry” leading up to the November presidential election.
“This is especially true as the presidential race shifts to a focus on law and order, as this case basically makes it a fair lending violation to make statements about the crime rate in Chicago and in support of the police,” Bopp wrote. “Now to avoid fair lending risk, financial institutions and their owners and executives will have to curb their advertising in conservative media and conservative political speech or at a minimum give ‘equal time’ to advertising on liberal media outlets. The CFPB is engaging in an outrageous trampling on the First Amendment.”