CFPB Strikes Yet Again!
Written by: Bill Dolan, CMB, AMP
On Friday, November 1, 2024, the Consumer Financial Protection Bureau (CFPB) filed a proposed order to resolve a case against Townstone Financial for discriminatory lending practices and redlining African American neighborhoods in Chicago. If entered by the court, the proposed order would prohibit Townstone from taking any actions that violate the Equal Credit opportunity Act (ECOA) and require the company to pay a $105,000 penalty to the CFPB’s victim relief fund. This action follows lengthy contested litigation and a unanimous July 2024 decision from the U.S Court of Appeals for the Seventh Circuit that stated the ECOA prohibits lenders from discouraging prospective applicants on a prohibited basis from applying for loans.
“The CFPB’s lawsuit against Townstone Financial included a major appellate court victory that makes clear that people are protected from illegal redlining even before they submit their application,” said CFPB Director Rohit Chopra. The CFPB will continue to prosecute those who engage in modern-day redlining.
The Seventh Court’s decision held unanimously that “an analysis of the text of the ECOA as a whole makes clear that the text prohibits not only outright discrimination against applicants for credit, but also the discouragement of prospective applicants for credit,” which is consistent with the Bureau’s regulation interpreting ECOA. The Court of Appeals reversed the decision of the district court, which had initially dismissed the lawsuit, and remanded the case for further proceedings.
Townstone was a nonbank retail-mortgage creditor and broker based in Chicago through 2018. Ninety percent of Townstone’s mortgage lending was in the Chicago metropolitan area. From 2014-2017, Townstone ranked in the top 10 percent of lenders that drew applications from the Chicago metropolitan area, receiving an average of 740 mortgage loan applications each year. Townstone ceased mortgage operations in 2018 during the CFPB’s investigation and is now exclusively a mortgage broker.
In 2020, the CFPB sued Townstone for discouraging potential applicants because of their race or the racial composition of where they lived or sought to live. Specifically, Townstone’s marketing, advertising, and business practices discouraged African Americans from applying for credit and actively avoided the credit needs of African American neighborhoods in the Chicago metropolitan area.
Townstone drew only five or six applications a year from properties in neighborhoods that were more than 80 percent African American, despite those neighborhoods representing nearly 14 percent of census tracts in the Chicago metropolitan area, and more than half of the applications. Townstone did draw from those neighborhoods were from white applicants. From 2014 through 2017, barely 2 percent of Townstone’s mortgage loan applications were for properties in majority African American neighborhoods, even though they make up nearly 19 percent of the Chicago metropolitan area’s census tracts.
The question I have for all of you is, “Do you know if your data is accurate and more importantly, do you know what your data is telling you?”
Many of you are in the throes of budget season and I am telling you now, to make sure you are setting aside the necessary dollars required to prep for your upcoming examinations whether for CRA and Fair Lending or Safety and Soundness. If 2024 is any indication of where the focus will continue to lie in 2025, be forewarned, as the CFPB, DOJ, along with FFIEC will continue to enforce consumer financial laws and regulations, ensuring that markets for consumer financial products are fair, transparent, and competitive, no matter who you think wins on Tuesday!
Get out in front by contacting Spillane Consulting Associates’ crack team of regulatory and compliance consultants who will bring their years of knowledge and experience to assess and analyze your HMDA data, address (and implement if needed) your Compliance Monitoring system and Fair Lending program. You can’t afford to rely on your opinion and gut instinct to make these decisions as the CFPB and DOJ will not wait!
Call today to discuss just how SCA can work for you! Contact Bill Dolan, Director, at (617) 694-2617 or by email at: Wdolan@scapartnering.com. While your at it, check out our Featured Services and Solutions page to learn more about the consulting and fulfillment services that SCA offers its clients throughout the country.
