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Reversing a lower court ruling, the 7th U.S. Circuit Court of
Appeals said the CFPB can try to prove that Chicago-based
Townstone Financial and its co-founder Barry Sturner violated
the federal Equal Credit Opportunity Act by discouraging Blacks
from applying for mortgage loans.
Circuit Judge Kenneth Ripple wrote for a three-judge panel that
a CFPB regulation for enforcing the law applied not just to
mortgage applicants, but also to discouraged prospective
applicants.
Redlining occurs when lenders deny or discourage mortgage loans
based on race, color, or national origin.
The CFPB sued Townstone and Sturner in July 2020, citing
statements made on Townstone's AM radio show and podcast "The
Townstone Financial Show", known as a long-form commercial
advertisement.
These included where Sturner said Chicago's South Side was
"hoodlum weekend" between Friday and Monday, and another host
discussing a mainly Black suburb said "you drive very fast
through Markham ... and you don't look at anybody or lock on
anybody's eyes."
Townstone's practices led to its receiving fewer mortgage
applications from Black applicants and for homes in
majority-Black neighborhoods than its Chicago-area peers, the
CFPB said.
The defendants said the CFPB lawsuit was a means to censor their
speech.
But Ripple, an appointee of Republican President Ronald Reagan,
said "it was clear" that Congress intended that the Equal Credit
Opportunity Act be construed broadly, with a goal of ending
discrimination in loan applications.
"The term 'applicant' cannot be read in a crabbed fashion" to
exclude discouraged applicants, Ripple wrote. "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."
Oliver Dunford, a lawyer for the conservative nonprofit Pacific
Legal Foundation which represented the defendants, said "we're
disappointed in the decision," which "ignored completely
Townstone's First Amendment arguments. We are considering our
options for further review."
A CFPB spokesperson had no immediate comment.
The 7th Circuit returned the case to U.S. District Judge
Franklin Valderrama in Chicago, who dismissed it in February
2023.
The case is CFPB v Townstone Financial Inc et al, 7th U.S.
Circuit Court of Appeals, No. 23-1654.
(Reporting by Jonathan Stempel in New York; Editing by Lisa
Shumaker)
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