Banking and Finance Law Daily CFPB sues mortgage creditor for discriminatory lending practices
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Thursday, July 16, 2020

CFPB sues mortgage creditor for discriminatory lending practices

By Nicole D. Prysby, J.D.

The Bureau alleges that the retail-mortgage creditor engaged in racially discriminatory lending practices, which were facilitated through statements made on a weekly radio show and podcast.

The Consumer Financial Protection Bureau announced on July 15, 2020, that it sued a nonbank retail-mortgage creditor, Townstone Financial, Inc., for discriminatory mortgage lending practices. The Bureau brought claims for violations of the Equal Credit Opportunity Act (ECOA) and its implementing regulation—Regulation B—and the Consumer Financial Protection Act (CFPA), alleging that Townstone, from 2014 to 2017, engaged in unlawful redlining and acts directed at prospective applicants that would discourage prospective applicants, on the basis of race, from applying for credit in the Chicago Metropolitan Statistical Area (MSA). Townstone purportedly engaged in the alleged acts via statements made during its weekly radio shows. The Bureau’s complaint was filed in federal district court for the Northern District of Illinois (Bureau of Consumer Financial Protection v. Townstone Financial, Inc., N.D. Ill., Case No. 1:20-cv-04176).

Complaint. More specifically, the CFPB’s complaint asserts that, during its weekly marketing radio shows and podcasts, Townstone made statements about African Americans and predominantly African-American neighborhoods that would discourage African-American prospective applicants from applying to Townstone. The Townstone Financial Show was distributed in a weekly radio show on AM radio and in a weekly podcast available online. Both the radio show and podcast were streamed on Facebook Live and then advertised on Facebook, Twitter, and LinkedIn. The show’s hosts made a number of statements across multiple episodes that would discourage African-American prospective applicants from applying to Townstone.

For example, in a January 2017 episode of the Townstone Financial Show, the hosts discussed a grocery store in downtown Chicago that was part of the Jewel-Osco grocery store chain. Townstone’s CEO described "[having] to go to the Jewel on Division We used to call it Jungle Jewel. There were people from all over the world going into that Jewel. It was packed. It was a scary place." This and other statements made on the Townstone Financial Show discouraged prospective applicants living in or seeking credit to purchase properties in majority-African-American neighborhoods from applying for credit from Townstone in the Chicago MSA.

The Bureau alleged that Townstone acted to meet the credit needs of majority-white neighborhoods in the Chicago MSA while avoiding the credit needs of majority African-American neighborhoods. From 2014-2017, Townstone drew over 90 percent of its mortgage loan applications for properties within the Chicago MSA, an area in which 18.7 percent of the census tracts were majority-African-American and 13.8 percent were high African-American. Only 1.4 to 2.3 percent of Townstone’s applications for the years 2014 through 2017 came from prospective applicants applying for mortgage loans for properties in majority-African-American areas. During that period, Townstone drew an average of five or six applications each year (0.7 to 0.9 percent of all Townstone applications) for properties in high-African-American neighborhoods, even though such neighborhoods made up 13.8 percent of the Chicago MSA’s census tracts. Townstone drew a significantly smaller proportion of mortgage-loan applications for properties in majority-African-American neighborhoods than its peer lenders operating in the Chicago MSA. For example, while Townstone drew 1.3 to 2.3 percent of its applications for properties in majority African-American neighborhoods from 2014 through 2017, Townstone’s peers drew 7.6 to 8.2 percent.

Relief sought. The Bureau seeks an injunction against Townstone, as well as damages, redress to consumers, and the imposition of a civil money penalty.

Attorneys: Thomas G. Ward, Cara Petersen, Jeffrey P. Ehrlich, Kara A. Miller, Michael G. Salemi, Vincent Herman, and Barry Reiferson for the Consumer Financial Protection Bureau.

Companies: Townstone Financial, Inc.

MainStory: TopStory CFPB EnforcementActions EqualCreditOpportunity Loans Mortgages

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