Townstone seeks to have CFPB's appeal of redlining case dropped

Townstone Financial filed a response to the Consumer Financial Protection Bureau appealing the dismissal of a redlining suit it brought against the mortgage lender in 2020.

In a brief filed Aug. 14, the Chicago mortgage lender argued the Seventh Circuit Court of Appeals should affirm the U.S. District Court for the Northern District of Illinois decision, which granted the lender a victory and rejected the bureau's argument that an anti-discrimination law protects prospective borrowers.

At the time, the District Court ruled that government watchdog's suit was invalid because the Equal Credit Opportunity Act applies only to home loan applicants, not to potential applicants. 

Richard Horn, co-managing partner at Garris Horn LLP and legal counsel for Townstone, called the CFPB's appeal "an uphill battle" for the bureau and its "arguments weak."

He noted he was not fully surprised the agency appealed the case because of the "level of hubris internally."

"The [CFPB] may have some blinders to their legal risks because it doesn't affect any of the staff there internally…everyone is getting paid and no one is getting fired," he said. "If the CFPB loses, which we firmly believe they will, they could also appeal to the Supreme Court, so this could go on for a while." 

The CFPB declined to comment.

The Federal Trade Commission, however, did provide input in early June. An amicus brief authored by James Doty, an attorney for the FTC, said the "Congress's aim of equal access to credit would be a nullity if creditors could blatantly broadcast to protected classes that their applications were not welcome."

"In upending almost fifty years of law, the district court ignored Congress's plain language directing regulators to further ECOA's "purpose" and prevent its "evasion," Doty's letter reads.

The suit, launched by the government watchdog almost half a decade ago, accused Townstone of engaging in illegal redlining by discouraging prospective Black applicants from applying for home loans.

The bureau's complaint alleged that from 2014 through 2017, the company's CEO and president made statements that "discouraged prospective applicants living in African-American neighborhoods in the Chicago MSA from applying to Townstone for mortgage loans."

Such alleged remarks included the company's CEO describing the South Side of Chicago between Friday and Monday as "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."

In February, Judge Franklin Valderrama of the Illinois federal court gave Townstone a victory. 

The case was dismissed with prejudice, which meant the CFPB could not refile the complaint. However, the Bureau still maintained a right to appeal. On April 3, it filed a notice with the Seventh Circuit Court of Appeals stating it would do that. The filing did not go into the specific reasons it elected to challenge Judge Valderrama's ruling.