WASHINGTON, D.C. — The Consumer Financial Protection Bureau (CFPB) has filed a proposed order to resolve its case against Townstone Financial. The order, pending court approval, seeks to address allegations of redlining African American neighborhoods in Chicago by the former mortgage lender.
The proposed order follows a decisive ruling by the United States Court of Appeals for the Seventh Circuit in July 2024, which unanimously affirmed that the Equal Credit Opportunity Act (ECOA) forbids lenders from discouraging potential applicants from applying for credit based on prohibited factors, including race. This appellate victory reversed an earlier district court dismissal, positioning the CFPB to advance its case against Townstone.
The CFPB’s lawsuit accused Townstone, which operated as a nonbank retail-mortgage creditor and broker until 2018, of deliberately discouraging African American applicants through its marketing and business strategies. The complaint highlighted that Townstone’s lending practices resulted in a stark underrepresentation of mortgage applications from African American neighborhoods. Despite these areas comprising nearly 19 percent of Chicago’s metropolitan census tracts, only about two percent of Townstone’s applications originated from these neighborhoods between 2014 and 2017.
During this period, Townstone’s activity was predominantly concentrated in the Chicago area, where it ranked among the top ten percent of lenders by application volume. Yet, it consistently failed to engage meaningfully with African American communities, drawing a minimal number of applications from predominantly African American areas and largely serving white applicants.
If approved, the proposed order mandates Townstone to pay a $105,000 penalty to the CFPB’s victims relief fund. Moreover, it stipulates that Townstone must adhere to the requirements of the ECOA, with any future violations potentially resulting in contempt of court and further sanctions.
CFPB Director Rohit Chopra underscored the significance of this legal action, noting that it reaffirms protections against modern-day redlining and discriminatory lending practices. The CFPB’s continued prosecution of such cases reflects its commitment to ensuring equitable access to credit for all communities.
Townstone, now operating solely as a mortgage broker, ceased its mortgage lending activities during the CFPB’s investigation in 2018. The resolution of this case marks a critical step in addressing systemic inequalities within the mortgage lending sector and reinforces the legal obligations of financial institutions to uphold fair lending standards.
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