Chicago area mortgage broker Townstone Financial could be in line to get back $105,000 they were forced to pay to the federal government to settle claims from financial regulators, after the Consumer Financial Protection Bureau said an internal investigation has since revealed Townstone was improperly targeted by the agency "on the basis of their viewpoints."
On March 26, attorneys for Townstone and the CFPB filed a joint motion in federal court to vacate the settlement agreement.
In the motion, the CFPB said the move comes in response to a directive issued by President Donald Trump for the agency to review past actions to
"Once new CFPB leadership undertook the review of the history of this case, it became clear from the totality of internal evidence that this case has suffered from deficiencies on the merits and Townstone was targeted because of its protected speech," the parties said in the joint motion.
Following the new filing in court, attorneys from the constitutional law advocacy group, the Pacific Legal Foundation, the government's request to vacate and refund.
"For seven years, Townstone argued that the case against it was baseless and violated the First Amendment,” said Steve Simpson, an attorney at Pacific Legal Foundation. “Townstone settled to escape the crushing burden of many more years in litigation. Now we know that CFPB knew — or should have known — it had no case and targeted Townstone for its speech. Justice demands that this settlement be vacated.”
A judge has not yet ruled on the motion.
In November, a Chicago federal judge signed off on the deal between Townstone and the CFPB, ending the years-long legal battle rife with ramifications for the ability of federal officials to regulate lenders' speech.
That settlement, in turn, had come nearly four months after a federal appeals court gave a green light to the CFPB to continue its pursuit of Townstone and its principal, Barry Sturner, in court over claims Sturner and others involved in the company had used comments on a radio program to discourage black homebuyers from applying for mortgage loans.
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 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 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 silence speech federal agents find objectionable.
According to court documents, Sturner and Townstone had sought throughout the case to gain access to documents and other records from the CFPB which could provide insight into how the agency selected Townstone for the enforcement action.
Those requests were either denied or stonewalled, ultimately leading the defendants to agree to settle, rather than continue to attempt to fight the action and potentially face a more costly conclusion after exhausting even more time and money defending against the case and the CFPB's relatively limitless resources.
The decision to settle was reinforced by the ruling from the U.S. Seventh Circuit Court of Appeals, which ruled the anti-discrimination language in the ECOA should extend to "prospective applicants," meaning the CFPB should have the authority to regulate lenders' speech, should it be perceived to discourage black homebuyers from applying for mortgages.
After Trump became president in January, the "new leadership" at the CFPB initiated an investigation into the Townstone case, in response to Trump's directive to federal "agency heads to 'identify and take appropriate action to correct past misconduct by the Federal Government related to censorship of [constitutionally] protected speech' and 'to review the activities of … agencies exercising civil and criminal enforcement authority … and identify any instances' reflecting improper targeting of enforcement actions 'oriented more toward inflicting political pain than toward pursuing actual justice or legitimate governmental objectives."
In its new filing, the CFPB said the resulting review revealed the case was launched against Sturner and Townstone "without substantial evidence of discrimination and based on the expressed political views of Mr. Sturner, Townstone's principal."
No one involved in the case, they said, "could fully fathom how egregious the First Amendment issues were without access to the Bureau's internal files..."
"Had Defendant been able to access the internal agency records demonstrating that the Bureau failed to wrestle with the deficiencies in this case and that it was targeted, it would have been able to advance a more strongly supported First Amendment, viewpoint-based targeting defense against the Bureau.
"... Here, Defendants were subjected to the serious hardship of a lengthy, groundless investigation and then of defending a suit, and ultimately paying a $105,000 fine where the CFPB targeted them based on the viewpoints of Townstone's owner, used improper tactics, and did so without disclosing investigators' motivations."
According to the Pacific Legal Foundation, the results of the CFPB's internal investigation revealed:
- "CFPB targeted Townstone based on its small size and the fact that it had a weekly radio show and podcast and had never employed an African American loan officer (even as CFPB recognized Townstone had employed Spanish- and Chinese-speaking loan officers)."
- "CFPB used an audio analytics mining software called Nexidia to term-search over five years’ worth of Townstone’s radio show and podcast content. CFPB mined six comments — which amounted to 16 minutes out of 78.5 total hours of content, or 0.33% of the total content of the show — that CFPB staff considered 'disconcerting' because they 'could be interpreted as inappropriate, incorrect, or insensitive.'”
- "CFPB staff described '[m]uch of the content of the show' as 'overtly political, and often highly critical of the Bureau.' Political speech is fully protected under the First Amendment, as is criticism of a government agency, whether or not that speech may offend someone. Nonetheless, CFPB lawyers concluded that Townstone’s speech constituted an unprotected commercial transaction."
- "CFPB had no evidence that anyone was deterred from seeking credit from Townstone or even offended by its comments. Yet CFPB decided to continue its investigation to 'provide an opportunity for further investigation into Townstone’s views on race and racism.'”
- "Apparently, viewing the Townstone matter as a necessary example to the rest of the industry, enforcement staff believed that 'given the gravity of intentional discrimination in the consumer financial marketplace (here, potentially with animus) there is strong need for deterrence.'”
- "Following the unrest in the wake of George Floyd’s death in May 2020, CFPB employees saved captures of tweets posted by Townstone’s owner, Barry Sturner. A PDF capture of the account profile page is filenamed 'Townstone Fin Tweets BS posts that he was victim of police.pdf.' Another capture, bearing a last-modified date of June 8, 2020, and filenamed 'Townstone tweet from June 2.pdf,' features Townstone’s owner expressing opposition to looting."
“CFPB refused to produce information during the lawsuit concerning its investigation of Townstone and, unfortunately, the magistrate judge sided with CFPB in that dispute,” said Ashley Levine, attorney at Pacific Legal Foundation, in a statement announcing the desired changes to the settlement. “If not for CFPB’s recent internal investigation, it is likely the information we now have would never have come to light.”