In the wake of a U.S. Supreme Court decision rewriting the rules for federal regulators, a Chicago area mortgage broker says federal judges should take note of that ruling in deciding whether financial banking regulators have exceeded their power by using a federal anti-discrimination law to target mortgage lenders’ speech.
Since 2020, mortgage broker Townstone Financial has been in Chicago federal court, defending itself against an anti-discrimination action brought by the federal Consumer Financial Protection Bureau.
Townstone, however, argues the case amounts to an illegal attempt by the CFPB to sue them into bankruptcy, to make an example of them over statements the brokerage’s executives made on a talk radio program.
Steve Simpson
| Pacific Legal Foundation
The CFPB complaint, filed in July 2020, accuses Townstone of racial discrimination. However, the CFPB complaint does not cite any particular instances in which Townstone allegedly discriminated against any real mortgage applicants. Rather, the complaint centers on statements Townstone CEO Barry Sturner and others associated with Townstone had made in passing on Townstone’s weekly radio “infomercial.”
The CFPB said those statements amounted to discrimination under the federal Equal Credit Opportunity Act, because they could “discourage” Black borrowers from applying for loans through Townstone.
CFPB further accused Townstone of not employing enough Black loan officers, and of not sufficiently targeting its advertising to potential Black applicants.
According to court documents, the alleged discriminatory statements included:
- In January 2017, Townstone CEO Barry Sturner allegedly related his experiences shopping at “the Jewel on Division” in Chicago. He referred to that particular supermarket as “Jungle Jewel,” adding: “There were people from all over the world going into that Jewel. It was packed. It was a scary place;”
- In June 2016, Sturner, in discussing “mortgage-lending services that Townstone could provide to police officers and others” described weekends on the South Side of Chicago as “hoodlum weekend,” adding: Police are “the only ones between that turning into a real war zone and keeping it where it’s kind of at;”
- In November 2017, during a discussion of skydiving and the resulting adrenaline “rush” that follows, a Townstone executive allegedly “suggested that ‘walking through the South Side at 3 a.m. [would] get the same rush;’”
- In January 2014, in giving advice on how to get a home ready for sale, a former Townstone executive and co-hosts of the Townstone show said home sellers should “change the light fixtures, paint it from top to bottom,” and “take down the Confederate flag;” and
- In January 2014, Townstone’s former president allegedly told a caller from Markham, a suburban community with a large Black population, that “it’s crazy in Markham on weekends,” and “You drive very fast through Markham … you don’t look at anybody or lock on anybody’s eyes in Markham … You look at your dashboard, you don’t lock on anybody.”
Townstone and Sturner have asked a federal judge to dismiss the case, calling the CFPB’s interpretation of the federal law “absurd” and an unconstitutional “overreach” intended to silence “entire viewpoints and categories of content” federal agents may disapprove of.
The CFPB argued its case is based on a federal regulation, known as “Regulation B,” which they said was enacted under the federal rulemaking process established under the ECOA, and which carries the same weight as the law itself. That regulation empowers federal regulators to take action against lenders who engage in the act of “discouraging … applications for credit.”
While the case has continued, others have also challenged alleged illegal expansions of federal regulatory power.
In June, the U.S. Supreme Court rewrote federal case law surrounding such challenges to federal regulatory overreach. In the decision known as West Virginia v Environmental Protection Agency, a 6-3 majority on the court ruled the U.S. EPA had exceeded the authority granted to it by Congress when it attempted to use clean air rules to promulgate a series of carbon emissions rules that all but ordered coal-fueled power plants to close, and be replaced by so-called renewable resources like wind and solar energy.
The high court grounded the ruling in the so-called “major questions doctrine,” which requires regulatory agencies to cite clear and explicit authorization from Congress before implementing rules and regulations that could produce “extraordinary cases” that carry heavy “economic and political significance.”
In West Virginia v EPA, the court’s majority said the EPA could not rely on the Clean Air Act for the authority it claimed to implement the Obama-era power plant rules.
Within two weeks of the West Virginia v EPA ruling, Townstone’s lawyers filed a petition with U.S. District Judge Franklin Valderrama, drawing his attention to the decision. In that motion, Townstone further indicated its belief the ruling carried implications for its case, as well.
Just as the EPA exceeded its authority under the Clean Air Act in implementing the Obama power plant regulatory scheme, so, too, did the CFPB exceed its mandate under the ECOA in suing Townstone for the talk radio statements, Townstone argued.
“ECOA prohibits discrimination against applicants for credit, not ‘prospective applicants,’ and it does not require mortgage companies to target advertising to, or ensure applications from, any particular racial or ethnic group, or make hiring decisions, based on race,” Townstone wrote in the motion filed July 8.
“The CFPB, in short, has changed the ‘plot line’ of ECOA significantly. Congress passed a law designed to prevent discrimination against applicants for credit. In the CFPB’s hands, the law has become a weapon to police speech by creditors on talk radio and force them to extend credit and make hiring decisions based on race — something the equal protection clause surely prohibits.”
They asserted the CFPB’s alleged expansion of the ECOA in that manner represents a “major question” under the framework established by the Supreme Court in the West Virginia decision.
Judge Valderrama gave the CFPB until Aug. 8 to respond to Townstone’s claims.
Townstone is represented in the case by attorneys Steven M. Simpson, Jessica L. Thompson and Oliver Dunford, of the Pacific Legal Foundation, of Arlington, Virginia, and Palm Beach Gardens, Florida; Sean P. Burke, of Mattingly Burke Cohen & Biederman, of Indianapolis; and Marx David Sterbcow, of the Sterbcow Law Group, of New Orleans.
The CFPB has been represented by in-house attorneys, including Jacob A. Schunk and Barry E. Reiferson.