In an unexpected move, the Consumer Financial Protection Bureau has asked a federal judge to vacate and set aside a $105,000 judgment against Townstone Financial, a Chicago mortgage broker accused of redlining.
Officials with the Trump administration claim the CFPB engaged in misconduct and should never have brought the case, which was
On Wednesday, the CFPB's Chief Legal Officer Mark Paoletta and attorneys for Townstone filed a joint motion for relief with the U.S. District Court for the Northern District of Illinois. The parties requested that the court set aside the CFPB's judgment and dismiss the case with prejudice.
Trump administration officials with the Office of Management and Budget said they have been digging through CFPB cases and found that "internal case files" show that the bureau investigated Townstone and the company's president and CEO Barry Sturner "without a substantial predicate of actionable facts."
Dan Bishop, a senior advisor at the Office of Management and Budget, said in a declaration filed with the court late Wednesday, that the CFPB targeted Sturner "based on constitutionally protected speech."
"This action should not have been filed," Bishop wrote in the declaration. "Once new CFPB leadership undertook the review of the history of this case, it became clear from the totality of internal evidence that this case has suffered from deficiencies on the merits and Townstone was targeted because of its protected speech."
Bishop reports to acting CFPB Director and Office of Management and Budget Director Russell Vought — a leading author of the Heritage Foundation's
At issue in the case was whether Sturner's comments had discouraged prospective Black applicants from applying for mortgage loans, which would violate ECOA and Regulation B — which prohibits creditors from discriminating on the basis of sex, race, color, religion, national origin, age or marital status.
Under Kraninger's watch, the CFPB alleged that Townstone engaged in illegal redlining and that Sturner's comments on a radio show infomercial discouraged prospective Black applicants from applying for home loans. Sturner marketed the company's mortgage services through an AM radio show called "The Townstone Financial Show."
In 2020, the CFPB's
The CFPB under Vought chose to issue its
The investigation conducted during the first Trump administration was "a seven-year harassment saga," the CFPB said. Kraninger was not mentioned in the legal filings, which lambasted the CFPB for its focus in 2020 on diversity, equity and inclusion, or DEI. The investigation of Townstone was not prompted by "any actual or perceived harm, but by pure quota-style statistics." The CFPB screened for redlining cases, initially identifying 22,000 companies, and winnowed its investigations down to just a handful of firms.
The CFPB said that the bureau used audio mining software to search Townstone's radio show, and identified 16 minutes—out of nearly 79 hours of radio content—that investigators deemed "disconcerting" and that "could be interpreted as inappropriate, incorrect, or insensitive."
"What was so disconcerting?" the CFPB said in its release. "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."
Left unmentioned in the release was that Sturner agreed in November to settle the case for $105,000. He did so after a three-judge panel of the U.S. Court of Appeals for the 7th Circuit delivered a major victory to the CFPB. The panel of judges
The appeals court panel said
Despite the settlement, the current CFPB, whose officials work for the Office of Management and Budget, chose to reopen the case, upbraid the agency's work, and attempt to claw back Townstone's fine. Steve Simpson, a Townstone attorney, said the appeals court does not have to approve the change.
"Right now the focus is the motion to vacate," Simpson said. "And CFPB knows the case was filed under Kraninger. It doesn't matter who was the head of CFPB, because the enforcement attorneys in any agency have most of the power to bring suits. Kraninger asked the right questions but was misinformed. Chopra said full speed ahead. Under both, CFPB was doing something wrong. The current administration corrected that. That's all that matters to us and all that should matter to the public."
The CFPB quoted Sturner in an article in the Washington Free Beacon saying: "When a federal agency with an unlimited budget and army of lawyers comes after your business and smears you as a racist, you're forced to give in and take it or choose an uphill fight."
Sturner told the news site that the CFPB had "twisted innocuous statements about crime into something nefarious and then tried to use it to ruin my reputation and destroy my business."
In the press release, Vought said the 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."
"The more we uncover at CFPB, the more we see how this agency was weaponized against targeted Americans," Vought said.
Bishop said in the release that the case "was a flagrant misuse of government resources to destroy a small business that did nothing wrong. For the crime of protected political speech, this firm was targeted and harassed for years by this rogue agency. We are righting this wrong and protecting the First Amendment."
The officials also claimed that the CFPB targeted Townstone "not based on any act of discriminatory conduct, but solely on perceived racial disparities in mortgage application and origination statistics."
Townstone received 876 mortgage applications over a three-year period, of which 31 came from "majority-minority" areas, or 3.5%.
"CFPB wanted a de-facto mortgage quota, a policy aligned with the views of radical DEI proponents like Robin DiAngelo and Ibram X. Kendi," the press release stated, referring to the authors of "White Fragility: Why It's So Hard for White People to Talk About Racism," and "How to be an Antiracist," respectively. The CFPB did not explain the relationship between the authors, their nonfiction books and the Townstone case.
Vought said in the press release that the CFPB "set out to destroy a small Midwest firm with about 10 employees and a radio program called Townstone Financial. After a thorough review, the CFPB is seeking to make Townstone whole by returning the six-figure penalty they were forced to pay."
