CFPB Seeks to Vacate Townstone Redlining Settlement

In an unprecedented move, the Consumer Financial Protection Bureau’s (“CFPB” or “Bureau”) Acting Director is seeking to vacate the Bureau’s settlement with Townstone Financial (“Townstone” or the “Company”), which was entered by the US District Court for the Northern District of Illinois on November 7, 2024. In a press release, Acting Director Vought stated that the CFPB “abused its power, used radical ‘equity’ arguments to tag Townstone as a racist with zero evidence . . . to further the goal of DEI in lending via their regulation by enforcement tactics.”

You may recall that, in July 2020, the CFPB filed a lawsuit against Townstone for alleged redlining of majority-Black areas of the Chicago MSA in violation of the Equal Credit Opportunity Act (“ECOA”) and the Consumer Financial Protection Act. The lawsuit marked the first time that a federal regulator had taken a public action against a non-bank mortgage lender for allegations of redlining (historically, redlining allegations had only been brought against depository institutions with legal obligations under the Community Reinvestment Act). Notably, the CFPB’s lawsuit against Townstone was filed during President Trump’s first term while the Bureau was under the leadership of his appointee, Director Kraninger.

The lawsuit wound its way through the courts for several years, but ultimately, the parties reached a settlement in November 2024, on the eve of the presidential election. As part of the settlement, Townstone agreed to pay a $105,000 civil penalty—a paltry sum compared to some of the eight-figure redlining settlements previously entered into by the CFPB, Department of Justice and other agencies. In its March 25 motion to vacate the stipulated final judgment and order (filed jointly with Townstone), the Bureau requests the dismissal of all claims and permission to return the $105,000 civil penalty to the Company.

The CFPB’s motion and press release make public certain internal workings of the Bureau—including references to internal memos and methodology for choosing targets of redlining investigations. The CFPB now argues that the Bureau staff acted improperly in pursuing the Townstone case in the following ways, among others:

• The CFPB used redlining screening software to identify 22,000 companies for potential redlining investigations and then winnowed it down to a handful with unexplained “qualitative research.”
• The Bureau targeted Townstone solely based on disparities in mortgage loan application and origination statistics. The press release states that the Bureau wanted a “de-facto mortgage quota” and according to the CFPB’s own assessment, Townstone had encouraged programs to help disadvantaged populations.
• The press release states that Townstone was targeted for their protected free speech and that the CFPB identified 16 minutes out of almost 79 hours (0.33%) of radio content that could be interpreted as “inappropriate, incorrect, or insensitive.” The press release cites to a survey of Black residents conducted by a consumer testing firm at the behest of Townstone, which found that none of the respondents took offense to the comments made on the radio show. The CFPB found no evidence that potential mortgage loan applicants had complained.
• According to the press release, an internal CFPB memo stated that Townstone could be penalized over $42 million for alleged violations of fair lending laws (or $28,906 per day for four years).

Acting Director Vought’s efforts to vacate the Townstone settlement leaves open the question of whether the Bureau will seek to undo other Biden-era settlements, and if so, how far back in time the Bureau may reach to relitigate final agency actions.