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CFPB Loses Novel Redlining Case Against Non-Bank Mortgage LenderRead Time: 1 min
On February 3, 2023, an Illinois federal judge dismissed with prejudice Bureau of Consumer Financial Protection v. Townstone Financial Inc. et al., the Consumer Financial Protection Bureau’s redlining case against a non-bank mortgage lender.
In Townstone, the CFPB alleged that mortgage lender Townstone Financial Inc. engaged in unlawful discrimination that violated the Equal Credit Opportunity Act (the ECOA). The complaint centered on the CFPB’s “redlining” theory, which relies on discouraging prospective applicants through discriminatory exclusionary tactics rather than demonstrating discrimination toward actual applicants. The CFPB alleged that comments made by the hosts on their radio show discouraged a class of applicants from seeking loans in various areas of Chicago.
The judge dismissed the action with prejudice, concluding that the ECOA does not extend to prospective applicants under a plain language reading of the statute and any amendment of the complaint would therefore be futile. The Court reasoned that “because the ECOA clearly and unambiguously defines [an applicant] as a person who applies to a creditor for credit . . . Congress has directly and unambiguously spoken on the issue at hand and only prohibits discrimination against applicants.” Therefore the Court did not need to go further than the face of the statute in conducting its Chevron analysis.
The Townstone case was novel for the CFPB, as it was one of the CFPB’s first fair lending enforcement actions against a lender in the non-bank mortgage sector. The CFPB may appeal the decision to the Seventh Circuit. While the decision has no binding impact on other courts, it may encourage more lenders to litigate rather than settle future redlining actions brought by the CFPB, especially if the issue involves prospective loan applications instead of applicants.
Reprinted with permission from the American Bar Association’s Business Law Today February Month-In-Brief: Business Regulation & Regulated Industries.