Following a lengthy lawsuit, the CFPB is trying to close the books on its lawsuit against Townstone Financial over discriminatory lending practices and gentrification in Chicago’s African-American neighborhoods.
If the order issued by the CFPB is upheld by the US District Court for the Northern District of Illinois, Townstone is prohibited from doing anything related to providing or providing mortgage loans in violation of the Equal Credit Opportunity Act (ECOA) and must pay a $105,000 penalty to the victim assistance fund CFPB.
This follows a July 2024 decision by a panel of judges of the Seventh Circuit Court of Appeals of the United States that the ECOA prohibits lenders from discouraging borrowers from applying for loans on prohibited grounds.
The decision of the Seventh Circuit “said that ‘an analysis of the entire text of ECOA makes it clear that the text not only prohibits direct discrimination against loan applicants, but also discourages those who want to apply for loans,’ which is consistent with the Bureau’s rules interpreting ECOA,” the office said.
The board reversed the decision of the district court, which had previously dismissed the case on the grounds that the ECOA applies only to receivers and, therefore, a regulatory decision cannot be maintained under the statute. The board remanded the case for further proceedings. Earlier we spoke to all the district courts control and control out of 7Th Round group. We maintain that the panel’s decision, which is limited in its analysis, does not represent a correct interpretation of the ECOA, and that the district court’s decision, which has the strongest analysis of the circumstances, got it right. In our view, ECOA applies only to applicants. If the issue of whether ECOA applies to potential plaintiffs reaches the Supreme Court as it stands, the CFPB may not be happy with the outcome.
Townstone operated as a mortgage broker and lender in Chicago at the time of the CFPB complaint, and currently operates as a mortgage broker. The CFPB reported that 90% of Townstone’s mortgages were in the city of Chicago. According to the CFPB, from 2014 to 2017, Townstone ranked among the top 10 percent of lenders that received applications from the city of Chicago, receiving about 740 mortgage applications each year, the bureau said.
The office sued Townstone in 2020, alleging that the company discriminated against potential job applicants because of their race or the type of neighborhood they live in or want to live in.
“Specifically, Townstone’s marketing, sales, and marketing activities discouraged African Americans from applying for loans and actively avoided the credit requirements of African American applicants and African American communities in the city of Chicago,” the office said.
Townstone only produced five or six applications a year for residential properties in areas that were more than 80% African American. Areas that represent approximately 14% of the census tracts in the city of Chicago. The agency reported that more than half of the Townstone requests that came from these areas were from whites. From 2014 to 2017, about 2% of Townstone’s mortgages were for properties in predominantly African American neighborhoods, despite making up about 19% of Chicago’s census tracts.
Townstone neither acknowledged nor denied the CFPB’s claims in the order. Compared to other CFPB redlining areas, as well as the Department of Justice redlining communities, the financial aspect is modest and quality arrangements are limited.