Latest CFPB Loss Signals Further Pushback on Agency Overreach | Stroock & Stroock & Lavan LLP
An Illinois federal judge recently granted a Chicago-based mortgage broker’s motion to dismiss a lawsuit alleging that he violated the Equal Credit Opportunity Act through an advertising program that discouraged potential minority applicants from applying for a loan violated This ruling represents a major setback to the Bureau’s efforts to expand fair enforcement of lending through novel liability theories.
The case, CFPB vs. Townstone Financial,[1] includes allegations that Townstone violated ECOA through its advertising.[2] In 2014, Townstone launched a weekly radio show called The Townstone Financial Show in which Townstone marketed its services through hosts who discussed mortgage-related issues and answered questions from potential applicants.[3] Various hosts performed from 2014 to 2017 The Townstone Financial Show made disparaging remarks about cities with high or mostly African American populations.[4] For example, in 2014, a host described that in Markham, Illinois, a city with an 80.3% African American population, “You have to drive through Markham very quickly. . . and in Markham you don’t look at anyone or fixate on anyone. . . .”[5] Townstone also did not target African Americans in the Chicago area with marketing.[6] Based on mortgage loan data during this period, Townstone received only 37 applications from African Americans from 2014 through 2017 out of a total of 2,700 applications.[7]
Accordingly, the Bureau alleged that Townstone violated Regulation B and ECOA by discouraging prospective African American applicants from applying for mortgage loans in its advertising program. Townstone questioned the Governing Board’s authority to bring discrimination claims against “potential applicants,” arguing that the ECOA applied only to “applicants” and that the Governing Board applied the ECOA potential applicants by regulation B was an unsupported interpretation of the law.[8]
The district court agreed with Townstone’s position and dismissed the case. Because the plain language of the ECOA prohibits discrimination against “applicants” rather than “potential applicants,” the Court ruled that Congress clearly limited the scope of the ECOA to application to applicants.[9]
Although the bureau has not yet decided whether it will appeal the district court’s dismissal, it is unlikely that the bureau will concede defeat and abandon this theory of liability. The Bureau recently took a series of fair enforcement actions against other financial services providers for their advertising content and announced that their aggressive enforcement stance is a top priority for the agency.[10] An unexplored avenue for the Bureau is whether its UDAAP agency would support similar enforcement efforts. Regardless of how the Bureau internalizes this judgment, there is certainly more to come. We will continue to monitor this development closely and report on it.
[1] #20-CV-4176, 2023 WL 1766484 (ND Fig. 3 Feb 2023).
[2] ID. at *1, 3.
[3] ID. at 1.
[4] ID.
[5] ID.
[6] ID. at 2 o’clock.
[7] ID.
[8] ID. At 4.
[9] ID. at 5’o clock.
[10] https://www.consumerfinance.gov/about-us/newsroom/cfpb-doj-and-occ-take-action-against-trustmark-national-bank-for-deliberate-discrimination-against-black-and-hispanic- Familys/; https://www.consumerfinance.gov/about-us/newsroom/cfpb-doj-order-trident-mortgage-company-to-pay-more-than-22-million-for-intended-discrimination-against-minorities- Familys/.