Rocket to shut down origination channel for real estate and insurance agents

Read Now
CFPBLegalMortgageOriginationPolitics & MoneyRegulatory

Townstone wins order to dismiss CFPB’s redlining lawsuit 

Judge ruled that the ECOA applies to “applicants,” not “prospective applicants”

A federal judge in Illinois ruled in favor of Townstone Financial Inc. and its owner, Barry Sturner, on a motion to dismiss with prejudice a redlining lawsuit filed by the Consumer Financial Protection Bureau (CFPB). 

In July 2020, the CFPB filed a lawsuit accusing the nonbank retail lender of discouraging prospective African American borrowers in the Chicago metropolitan area from applying for mortgages. 

Townstone filed the motion to dismiss in October 2020, which was granted on Friday by Judge Franklin Valderrama in the U.S. District Court for the Northern District of Illinois, Eastern Division. 

The CFPB declined to comment on the decision, for which it can appeal.  

Starting as early as 2014, Townstone marketed its services through its radio show and podcast. The lawsuit brought to light comments made by Sturner on the show, which the CFPB claimed referenced majority-African-American neighborhoods as places where you “drive very fast,” and “you don’t look at anybody or lock on anybody’s eyes.” 

In January 2017, Sturner spoke of going to a grocery store in downtown Chicago by saying he “(had) to go to the Jewel on Division. … We used to call it ‘Jungle Jewel.’ There were people from all over the world going into that Jewel. It was packed. It was a scary place.”

The CFPB alleged that the term “jungle“ was a derogatory reference associated with African Americans and foreigners. By saying that the grocery store was “scary,” he was discouraging African-American prospective applicants from applying for mortgage loans from Townstone, the CFPB claimed.

Judge Valderrama ruled that Sturner was referencing being scared at the grocery store itself, and not that he was referencing an African American neighborhood.

The agency also said that in June 2016 Sturner called the South Side of Chicago – a majority Black area of the city – between Friday and Monday “hoodlum weekend,“ and that the police are “the only ones between that turning into a real war zone and keeping it where it’s kind of at.”

The CFPB again alleged that in making the statement Sturner was discouraging Black people from applying for mortgages.

In a statement to HousingWire, Sturner said, “Townstone does not discriminate and no one has ever complained about anything Townstone said on its radio show.” 

The lawsuit also includes data showing that Townstone drew about 2,700 applicants from 2014 to 2017, with only 1.4% of the total coming from African American residents in the Chicago metropolitan area. During the same period, Townstone drew 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 it “shall be unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction—on the basis of race, color, religion, national origin, sex or marital status, or age.” 

Congress directed the Federal Reserve Board, consequently the CFPB, to make regulations to carry out the purposes of the ECOA. 

It resulted in Regulation B, which says, “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.” 

According to Townstone, the CFPB, through its lawsuit, improperly attempted to expand the ECOA’s reach beyond the “express” and “unambiguous” language of the statute. 

Defendants said the ECOA regulates behavior toward credit applicants. It does not regulate behavior relating to “prospective applicants who have not yet applied for credit.”  

In his decision, Judge Valderrama said, “the CFPB cannot amend its pleading in a way that would change the language of the ECOA.” 

Steve Simpson of the Pacific Legal Foundation, who acted as counsel for Townstone, said in a statement to HousingWire that “no agency, including CFPB, has the authority to rewrite a law prohibiting discrimination against credit applicants into one that attempts to prohibit non-discriminatory conduct and speech.”

“Unfortunately, we had to spend years fighting 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,” Sturner said.

Leave a Reply

Your email address will not be published. Required fields are marked *

Most Popular Articles

3d rendering of a row of luxury townhouses along a street

Log In

Forgot Password?

Don't have an account? Please