Chicago area mortgage broker Townstone Financial has agreed to pay $105,000 and to submit to "education" for its executives and staff and specific regulatory oversight as part of a settlement to end an action brought by federal financial regulators who sought to punish Townstone for comments the brokerage's executives made on Townstone's radio show, which the federal agency alleged would discourage black homebuyers from applying for loans.
In November, a Chicago federal judge signed off on the deal between Townstone and the Consumer Financial Protection Bureau, ending the years-long contentious court fight rife with ramifications for the ability of federal agents to regulate lenders' speech.
For their part, Townstone and its attorneys with the nonprofit constitutional law organization, the Pacific Legal Foundation, called the settlement "favorable."
“This case should never have been brought," said Steve Simpson, an attorney with PLF who represented Townstone and its president, Barry Sturner, against the CFPB.
"Unfortunately, the federal government possesses vast resources and the power to destroy lives and livelihoods, so settling is often the best approach for anyone facing a lawsuit of this kind," Simpson said.
The settlement came nearly four months after a federal appeals court gave a green light to the CFPB to continue its pursuit of Townstone and Sturner in court.
That ruling had overturned a decision from a Chicago federal district court judge, who had determined the federal agency had stretched a federal lending anti-discrimination law too far in bringing the action against Townstone.
The case had first landed in court in 2020, when the CFPB sued Townstone, alleging company officials had effectively discriminated against black borrowers through comments Townstone executives made several years earlier on Townstone radio infomercials.
The agency never accused Townstone of allegedly discriminating against any actual mortgage applicants on the basis of race or any other factor.
Rather, the complaint centered on statements Sturner and others associated with Townstone had made in passing on Townstone's weekly radio show.
The CFPB has asserted those statements amounted to discrimination under the federal Equal Credit Opportunity Act (ECOA), because they could "discourage" black borrowers from applying for loans through Townstone.
Further the CFPB has accused Townstone of not employing enough black loan officers and of not sufficiently advertising its products and services to potential black borrowers.
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.”
Sturner and Townstone, with the Pacific Legal Foundation, had contested the CFPB's action, accusing the agency of an "absurd" and unconstitutional interpretation of the ECOA law. They said the CFPB was not trying to use the action to remedy any actual discrimination, but instead sought to use the law to merely silence speech federal agents find objectionable.
Townstone and Sturner have asserted the regulatory action amounts to a violation of the company's and Sturner's First Amendment rights, as well as regulatory overreach.
In February 2023, U.S. District Judge Franklin Valderrama sided with Townstone and dismissed the CFPB's case. In the ruling Valderrama agreed the CFPB had misapplied the ECOA, saying the law "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 in his order dismissing the action.
The appeals court said the anti-discrimination language in the ECOA protecting "applicants" should extend to "prospective applicants," as well, meaning the CFPB should have the authority to regulate lenders' speech, should it be perceived to discourage black homebuyers from applying for mortgage loans.
"Reading the statutory language as a whole, including the strong congressional direction that the cognizant agencies and the Department of Justice prevent 'circumvention and evasion,' makes clear that the prohibition against discouragement must include the discouragement of prospective applicants," wrote Seventh Circuit Judge Diane Sykes in the July ruling.
"... Indeed, the ECOA’s scope of prohibition prohibits discrimination 'with respect to any aspect of a credit transaction.'
"Congress well understood that 'any aspect of a credit transaction' had to include actions taken by a creditor before an applicant ultimately submits his or her credit application," Sykes said.
In response to that ruling, the PLF said it believed the appellate decision improperly "completely ignored Townstone's First Amendment arguments."
However, facing the prospect of further proceedings within the unfriendly bounds set by the Seventh Circuit's ruling, Sturner and Townstone opted to settle.
According to court documents, under the settlement, the CFPB agreed to dismiss Sturner as an individual defendant, meaning he cannot face any individual liability.
Further, Townstone agreed to "create, implement and maintain policies and procedures to test Townstone's compliance with the ECOA." The lender also agreed to allow the CFPB to "require ongoing education and training ... for all appropriate employees..." to ensure compliance with "federal consumer protection laws."
Townstone also agreed to pay the CFPB a penalty of $105,000.
The settlement deal will remain in effect for five years, according to court documents.
In a statement, Sturner said he simply wished to put the ordeal in the past.
“My family and I are relieved to finally put this nightmare behind us,” said Sturner. “The last six years have taken a toll on all of us.”
The Pacific Legal Foundation said, while the Townstone case has ended, it expects the CFPB will "doubtless ... continue to exceed its authority."
They predicted future court fights over the limits of the federal regulators over the speech and constitutional rights of mortgage lenders and others subject to the agency's oversight.