Townstone Financial may settle redlining case with CFPB

A Chicago area mortgage lender that emerged victorious in a redlining complaint last year may now settle those claims with a federal regulator. 

Attorneys for Townstone Financial and the Consumer Financial Protection Bureau wrote this week they've entered into settlement negotiations and believe a resolution is likely.

The filing Tuesday in an Illinois federal court follows a July decision from the U.S. Court of Appeals for the 7th Circuit, which sided with the CFPB by ruling that the Equal Credit Opportunity Act applies not just to credit applicants but also to prospective applicants. The CFPB in its case had alleged discriminatory remarks were made during a Townstone radio show as far back as 2014.

A representative for the CFPB declined to comment Thursday. Townstone President and CEO Barry Sturner, and attorneys with the Pacific Legal Foundation representing Sturner and the company, didn't immediately respond to requests for comment.

The CFPB in its original complaint points to derogatory comments by Sturner and other radio hosts between 2014 and 2017, including referring to Friday to Monday in the predominantly African American South Side of Chicago as "hoodlum weekend." 

The Equal Credit Opportunity Act and Regulation B complaint cited Townstone's lending statistics during that time, in which just 1.4% of its 2,700 applications came from African Americans in the Chicago area. It also did not employ a Black loan officer among its 17 originators. The CFPB amounted Townstone's statements and practices as redlining African American neighborhoods.

A U.S. District Court judge last year dismissed the CFPB's complaint, ruling the ECOA claim only applied to mortgage applicants and not prospective borrowers. In July a federal appeals court reversed that decision, stating the CFPB has the authority to apply the ECOA to prospective applicants. 

The parties have since re-litigated the case in the District Court. Attorneys for defendants in a September joint status report indicated a First Amendment defense, suggesting the Bureau is chilling Townstone and Sturner's speech. They were scheduled to file a motion to postpone expert discovery by Friday. 

Tuesday's joint motion to stay the proceedings pending settlement negotiations asks for a 90 day halt. 

Townstone, founded in 2002, has active origination licenses in five states, and has three sponsored mortgage loan originators according to Nationwide Multistate Licensing System records. 

Feds have stepped up redlining enforcement in recent months. New Jersey-based OceanFirst Bank in September agreed to provide $15 million in financial assistance over discrimination accusations by the Department of Housing and Urban Development and the Department of Justice. 

Fairway Independent Mortgage Corp. last week also agreed to pay $10 million in a redlining settlement with the CFPB and Department of Justice, for allegedly discouraging Black consumers from applying for mortgages in Alabama. That resolution brought the total amount of relief secured by the DOJ's Combating Redlining Initiative to over $150 million.