CFPB Loses Redlining Complaint Against Nonbank Mortgage Company
Earlier this month, a federal court in the Northern District of Illinois struck a major blow to the ability of the Consumer Financial Protection Bureau (“CFPB”) to expand the provisions of the Equal Credit Opportunity Act (“ECOA”) to prospective applicants for credit products as well as applicants.
The case involved Townstone Financial, a nonbank mortgage company. The CFPB sued Townstone in 2020 over alleged ECOA violations, including allegations that Townstone engaged in racial redlining. In particular, the CFPB took issue with several statements Townstone made on the “Townstone Financial Show” a long-form commercial advertisement show that Townstone made available as a podcast and for streaming on platforms such as Facebook. According to the CFPB, statements made by Townstone in its show had the impact of discouraging prospective African-American applicants from applying for a mortgage loan from the mortgage company.
For its part, Townstone maintained that no violations of ECOA occurred because it never discriminated against “applicants” for its services. According to Townstone, the CFPB could not extend ECOA’s prohibitions to apply to “prospective applicants” under the plain reading of the statute and its implementing regulations.
The District Court agreed with Townstone and dismissed the CFPB’s claims. The District Court based its decision on the plain text of ECOA, which it noted clearly prohibits discrimination against an “applicant.” The District Court went on to reason that because an “applicant” is defined as a “person that applies to a creditor for credit” the term did not encompass “prospective applicants”.
The case and its outcome are particularly relevant given the CFPB’s announcement last March that it was updating its examination manual to broaden protection for consumers from discrimination by applying ECOA redlining and discrimination restrictions to financial services not covered by ECOA under the CFPB’s UDAAP authority.