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CFPB Loses Novel Redlining Case Against Non-Bank Mortgage Lender

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On February 3, 2023, an Illinois federal judge dismissed with prejudice Bureau of Consumer Financial Protection v. Townstone Financial Inc. et al., the Consumer Financial Protection Bureau’s redlining case against a non-bank mortgage lender.

In Townstone, the CFPB alleged that mortgage lender Townstone Financial Inc. engaged in unlawful discrimination that violated the Equal Credit Opportunity Act (the ECOA). The complaint centered on the CFPB’s “redlining” theory, which relies on discouraging prospective applicants through discriminatory exclusionary tactics rather than demonstrating discrimination toward actual applicants. The CFPB alleged that comments made by the hosts on their radio show discouraged a class of applicants from seeking loans in various areas of Chicago.

The judge dismissed the action with prejudice, concluding that the ECOA does not extend to prospective applicants under a plain language reading of the statute and any amendment of the complaint would therefore be futile. The Court reasoned that “because the ECOA clearly and unambiguously defines [an applicant] as a person who applies to a creditor for credit . . . Congress has directly and unambiguously spoken on the issue at hand and only prohibits discrimination against applicants.” Therefore the Court did not need to go further than the face of the statute in conducting its Chevron analysis.

The Townstone case was novel for the CFPB, as it was one of the CFPB’s first fair lending enforcement actions against a lender in the non-bank mortgage sector. The CFPB may appeal the decision to the Seventh Circuit. While the decision has no binding impact on other courts, it may encourage more lenders to litigate rather than settle future redlining actions brought by the CFPB, especially if the issue involves prospective loan applications instead of applicants.

Reprinted with permission from the American Bar Association’s Business Law Today February Month-In-Brief: Business Regulation & Regulated Industries.

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March 24, 2023

In early March 2023, the Consumer Financial Protection Bureau (CFPB) issued a special edition of its Supervisory Highlights that focused exclusively on “junk fees” uncovered in various supervisory examinations in various industries, including mortgage servicing. This continued focus on junk fees is unsurprising given the priorities of the Biden Administration to curb the use of fees charged to consumers for goods and services.

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Taking the Case: SCOTUS to Decide Constitutionality of CFPB

February 27, 2023

Today, the Supreme Court of the United States granted the petitions for writs of certiorari filed in CFPB et. al. v. Com. Fin. Services Assn., where a panel of the United States Court of Appeals for the Fifth Circuit ruled that the Consumer Financial Protection Bureau (CFPB)’s funding mechanism is unconstitutional, and ultimately invalidated the payday lending rule at issue in that case. The Community Financial Services case is the latest in a long line of challenges to the Bureau itself that could have a wide ranging impact on businesses and entities subject to the CFPB’s authority.  

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CFPB Proposes Databases Highlighting UDAAP Judgments, Form Contract Provisions

February 15, 2023

Continuing its trend of aggressive oversight over financial institutions, the CFPB has recently announced proposals to create two publicly accessible databases that, it says, will highlight alleged bad actors, identify systemic unfair and deceptive acts and practices (UDAAP), and increase market transparency and regulatory oversight. This article provides an overview of each proposed registry alongMore

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July 26, 2022

Continuing a recent trend of highlighting potential unfair and deceptive acts or practices (UDAAP) within the auto loan servicing industry, the Consumer Financial Protection Bureau (CFPB) recently issued a new blog post focusing on the Servicemembers Civil Relief Act (SCRA). Auto loan servicers and dealerships may want to review their SCRA policies and procedures to ensure they comply with the law and provide the requisite protection for active military members prior to repossessing collateral.  

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June 16, 2022

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