Dive Brief:

• The Consumer Financial Protection Bureau has asked a federal judge to vacate a settlement with Townstone Financial and return $105,000 to the mortgage firm accused of redlining.
• The CFPB’s chief legal officer, Mark Paoletta, and attorneys for Townstone filed a joint motion for relief Wednesday to vacate the final judgment and order issued in November in the U.S. District Court for the Northern District of Illinois.
• “CFPB abused its power, used radical ‘equity’ arguments to tag Townstone as racist with zero evidence, and spent years persecuting and extorting them – all to further the goal of mandating DEI in lending via their regulation by enforcement tactics,” Acting Director Russ Vought said in a statement.

Dive Insight:

Since the new administration has taken over, the CFPB has dropped nine lawsuits that the agency brought on behalf of consumers. In February, it dismissed its lawsuit against Capital One, after the Biden-era iteration of the CFPB accused the bank of misleading consumers about a savings account product. It has also dismissed cases against JPMorgan Chase, Bank of America, Wells Fargo and SoLo Funds. 

“The more we uncover at CFPB, the more we see how this agency was weaponized against targeted Americans,” Vought said.

The case against Townstone was brought by former CFPB Director Kathleen Kraninger, an appointee from President Donald Trump’s first term. 

The CFPB claimed it found “significant undisclosed problems” with the bureau’s treatment of this case that resulted in “unmerited investigation and litigation” and violated the defendants’ First Amendment rights of free speech.

The CFPB accused Chicago-based Townstone of discouraging residents living in majority-Black neighborhoods from applying for mortgages in the city’s metropolitan area through its comments made on its radio show and podcast. In a June 2016 episode of the Townstone Financial Show, the company's CEO, Barry Sturner, described Chicago’s South Side between Friday and Monday as “hoodlum weekend” and suggested that police are the only barrier preventing it from becoming a “real war zone.” 

The South Side is a majority-Black area, with roughly 489,000 African-American residents. 

The CFPB said the agency had pinned down 16 minutes of the program's nearly 79 hours of radio content that they considered “disconcerting” and inappropriate.

“What was so disconcerting? Talking about local crime, political issues around freedom of speech, supporting local law enforcement, and telling people to check out a neighborhood before buying a home,” the CFPB noted. 

Initially, a federal court dismissed the lawsuit in 2023, ruling that the Equal Credit Opportunity Act only protected actual loan applicants, not potential ones. However, the U.S. Court of Appeals for the Seventh Circuit overturned this decision, finding that the law protects prospective credit applicants.

“My family and I are relieved to finally put this nightmare behind us,” Sturner said in a statement after the case was settled in November. “The last six years have taken a toll on all of us.”

The CFPB did not mention that Sturner agreed to settle the case without approving or denying the allegations brought by the agency. 

“We don’t know if CFPB is doing other internal investigations, but we think they should,” Steve Simpson, director of separation-of-powers litigation at Pacific Legal Foundation, the law firm that represented Townstone in the lawsuit, said via email. “Congress should get involved as well. One case like Townstone is too many. But where there is one, there are likely more.”