A judge has tossed an anti-discrimination suit by the Consumer Financial Protection Bureau against Chicago-based mortgage broker Townstone Financial, which alleged Townstone's offficers made comments on the broker's radio show the agency claimed could deter Black prospective homebuyer from seeking loans, saying the bureau has no authority to address bias against potential loan applicants, only those actually applying for loans.
"It is a great day for small businesses in America and a great day for the rule of law. For five years, the bureau pursued a small mortgage company using strained interpretation of the U.S. Equal Credit Opportunity Act," said Sean Burke, one of the lawyers representing Townstone Financial.
On Feb. 3 in U.S. District Court for the Northern District of Illinois, Judge Franklin Valderrama ruled in the case pitting the CFPB against Townstone, a home mortgage company based in Chicago with operations in Illinois, Indiana, Wisconsin, Michigan and Florida.
In July 2020, the CFPB sued Townstone, alleging company officials betrayed anti-Black lending practices through comments they made several years earlier on Townstone radio infomercials. The CFPB grounded the suit in the U.S. Equal Credit Opportunity Act (ECOA), saying the remarks amounted to discrimination and could "discourage" Black prospective homebuyers from seeking loans from Townstone.
The alleged comments were made by Townstone President and CEO Barry Sturner.
In one instance, the CFPB said Sturner referred to a Jewel supermarket on Division Street in Chicago as a "Jungle Jewel" and saying, "There were people from all over the world going into that Jewel. It was a scary place." In another infomercial, Sturner allegedly described weekends on Chicago's South Side as "hoodlum weekend" and police kept that area from becoming a "real war zone."
Another Townstone executive allegedly talked of the "rush" one can feel by visiting the South Side at 3 a.m.
A former company executive and co-host of the infomercial allegedly said home sellers should "take down the Confederate flag" to ready their house for sale. A former company president, referring to the Black-majority community of suburban Markham, said, "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."
Townstone said the statements were part of "innocuous discussions" the CFPB "took completely out of context."
The suit also alleged Sturner tried to transfer $2.4 million from Townstone to himself, to shield the money from fines or court judgments the CFPB could obtain against the company in the suit.
Townstone called the CFPB's suit an "absurd" unconstitutional "overreach" that would shut down viewpoints of which federal agents disapprove. In the company's view, the ECOA only applies to applicants, not potential applicants. The company asked Judge Valderrama to throw out the suit, which the judge agreed to do.
"The Court finds the ECOA unambiguously prohibits discrimination of 'applicants,' and not 'prospective applicants.' The CFPB cannot regulate outside the bounds of the ECOA, and the ECOA clearly marks its boundary with the term 'applicant,'" Valderrama said.
Valderrama declined to give the CFPB a shot at amending their suit, saying any amendment would be "futile," because "the CFPB cannot amend its pleading in a way that would change the language of the ECOA."
In the wake of the dismissal, Townstone's CEO Sturner and company attorneys released statements.
Sturner said, “Townstone does not discriminate, and no one has ever complained about anything Townstone said on its radio show."
A Townstone lawyer, Steven Simpson, said, “The court’s decision today is a ringing endorsement of the Constitution’s separation of powers. Congress makes the law; agencies enforce it. No agency — CFPB included — is empowered to rewrite a law prohibiting discrimination against credit applicants into one that attempts to prohibit non-discriminatory conduct and speech."
Another Townstone lawyer, Marx D. Sterbcow, asked, "Where do Townstone and Barry Sturner go to get their reputations back? CFPB has spent years accusing them of racial discrimination for making innocuous statements on a radio show that would never discourage anyone from seeking credit. This case was baseless and should never have been filed.”
Townstone lawyer Richard Horn chimed in, "This is a win not just against CFPB overreach in redlining cases, but against an administrative state that believes it has limitless authority."
Townstone has been defended by Steven M. Simpson, Jessica L. Thompson, John F. Kerkhoff and Oliver Dunford, of Pacific Legal Foundation, of Arlington, Virginia, and Palm Beach Gardens, Florida; Sean P. Burke and Elinam B. Kpotufe of Mattingly Burke Cohen & Biederman, of Indianapolis; Richard Horn, of Garris Horn, of Dallas; and Marx D. Sterbcow, of Sterbcow Law Group, of New Orleans.
The CFPB has been represented by in-house lawyers Jacob A. Schunk, Gregory W. Jones, Vincent P. Herman, Karen S. Bloom, Mary E. Olson, Michael G. Salemi and Barry E. Reiferson.