Latest CFPB Loss Signals Further Pushback on Agency Overreach
February 17, 2023
Stroock Client Alert
By: Allen H. Denson, Brianna Bauer
An Illinois federal judge recently granted a Chicago-based mortgage broker’s motion to dismiss a claim alleging it violated the Equal Credit Opportunity Act through an advertising scheme that allegedly discouraged minority prospective applicants from applying for loans. This ruling represents a major setback for the Bureau’s efforts to expand fair lending enforcement through novel theories of liability.
The case, CFPB v. Townstone Financial,[1] involves allegations that Townstone violated the ECOA through its advertising.[2] In 2014, Townstone began a weekly radio show called The Townstone Financial Show in which Townstone marketed its services through hosts who would discuss mortgage-related issues and answer questions from prospective applicants.[3] From 2014 to 2017, various hosts on The Townstone Financial Show made derogatory statements about cities with a high or majority African-American population.[4] For instance, in 2014, one host described that in Markham, Illinois, a city with an 80.3% African American population, “You must drive very fast through Markham . . . and you don’t look at anybody or lock on anybody’s eyes in Markham . . . .”[5] Townstone also did not direct any targeted marketing to African Americans in the Chicago area.[6] Based on mortgage loan data during this time period, Townstone only received 37 applications from African Americans out of 2,700 total applications from 2014 to 2017.[7]
Accordingly, the Bureau alleged that Townstone violated Regulation B and the ECOA by discouraging African American prospective applicants in its advertising scheme from applying for mortgage loans. Townstone challenged the Bureau’s authority to bring claims for discrimination against “prospective applicants,” arguing that the ECOA only applies to “applicants” and that the Bureau’s application of the ECOA to prospective applicants through Regulation B was an unsupported interpretation of the statute.[8]
The district court agreed with Townstone’s position and dismissed the case. Since the plain language of the ECOA prohibits discrimination against “applicants,” not “prospective applicants,” the court determined that Congress unambiguously limited the scope of the ECOA to apply only to applicants.[9]
While the Bureau has not yet decided whether to appeal the district court’s dismissal, it is unlikely that the Bureau will concede defeat and abandon this theory of liability. The Bureau has recently taken a number of fair lending enforcement actions against other financial services providers for their advertising content and has announced that its aggressive enforcement posture is a top priority for the agency.[10] One unexplored avenue for the Bureau is whether its UDAAP authority would support similar enforcement efforts. Regardless of how the Bureau internalizes this ruling, there is surely more to come. We will continue to closely monitor and report on this development.
[1] No. 20-CV-4176, 2023 WL 1766484 (N.D. Ill. Feb. 3, 2023).
[2] Id. at *1, 3.
[3] Id. at *1.
[4] Id.
[5] Id.
[6] Id. at *2.
[7] Id.
[8] Id. at *4.
[9] Id. at *5.
[10] https://www.consumerfinance.gov/about-us/newsroom/cfpb-doj-and-occ-take-action-against-trustmark-national-bank-for-deliberate-discrimination-against-black-and-hispanic-families/; https://www.consumerfinance.gov/about-us/newsroom/cfpb-doj-order-trident-mortgage-company-to-pay-more-than-22-million-for-deliberate-discrimination-against-minority-families/.
February 17, 2023
Stroock Client Alert
By: Allen H. Denson, Brianna Bauer
An Illinois federal judge recently granted a Chicago-based mortgage broker’s motion to dismiss a claim alleging it violated the Equal Credit Opportunity Act through an advertising scheme that allegedly discouraged minority prospective applicants from applying for loans. This ruling represents a major setback for the Bureau’s efforts to expand fair lending enforcement through novel theories of liability.
The case, CFPB v. Townstone Financial,[1] involves allegations that Townstone violated the ECOA through its advertising.[2] In 2014, Townstone began a weekly radio show called The Townstone Financial Show in which Townstone marketed its services through hosts who would discuss mortgage-related issues and answer questions from prospective applicants.[3] From 2014 to 2017, various hosts on The Townstone Financial Show made derogatory statements about cities with a high or majority African-American population.[4] For instance, in 2014, one host described that in Markham, Illinois, a city with an 80.3% African American population, “You must drive very fast through Markham . . . and you don’t look at anybody or lock on anybody’s eyes in Markham . . . .”[5] Townstone also did not direct any targeted marketing to African Americans in the Chicago area.[6] Based on mortgage loan data during this time period, Townstone only received 37 applications from African Americans out of 2,700 total applications from 2014 to 2017.[7]
Accordingly, the Bureau alleged that Townstone violated Regulation B and the ECOA by discouraging African American prospective applicants in its advertising scheme from applying for mortgage loans. Townstone challenged the Bureau’s authority to bring claims for discrimination against “prospective applicants,” arguing that the ECOA only applies to “applicants” and that the Bureau’s application of the ECOA to prospective applicants through Regulation B was an unsupported interpretation of the statute.[8]
The district court agreed with Townstone’s position and dismissed the case. Since the plain language of the ECOA prohibits discrimination against “applicants,” not “prospective applicants,” the court determined that Congress unambiguously limited the scope of the ECOA to apply only to applicants.[9]
While the Bureau has not yet decided whether to appeal the district court’s dismissal, it is unlikely that the Bureau will concede defeat and abandon this theory of liability. The Bureau has recently taken a number of fair lending enforcement actions against other financial services providers for their advertising content and has announced that its aggressive enforcement posture is a top priority for the agency.[10] One unexplored avenue for the Bureau is whether its UDAAP authority would support similar enforcement efforts. Regardless of how the Bureau internalizes this ruling, there is surely more to come. We will continue to closely monitor and report on this development.
[1] No. 20-CV-4176, 2023 WL 1766484 (N.D. Ill. Feb. 3, 2023).
[2] Id. at *1, 3.
[3] Id. at *1.
[4] Id.
[5] Id.
[6] Id. at *2.
[7] Id.
[8] Id. at *4.
[9] Id. at *5.
[10] https://www.consumerfinance.gov/about-us/newsroom/cfpb-doj-and-occ-take-action-against-trustmark-national-bank-for-deliberate-discrimination-against-black-and-hispanic-families/; https://www.consumerfinance.gov/about-us/newsroom/cfpb-doj-order-trident-mortgage-company-to-pay-more-than-22-million-for-deliberate-discrimination-against-minority-families/.
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