CFPB seeks settlement in Townstone Financial redlining dispute

The Consumer Financial Protection Bureau (CFPB) on Friday announced that it is seeking a settlement with Chicago-based Townstone Financial that would resolve a case over what the bureau calls “discriminatory lending practices and redlining African American neighborhoods in Chicago.”

The proposed order would prohibit Townstone from taking any action that would violate the Equal Credit Opportunity Act (ECOA) and require Townstone to pay a penalty of $105,000 into the CFPB’s victims relief fund.

The move toward this resolution follows a lengthy court battle dating back to 2020, along with a July decision by the U.S. Court of Appeals for the Seventh Circuit that reaffirmed the Bureau’s authority to prohibit discrimination against credit applicants and from discouraging prospective applicants for credit under the ECOA.

“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,” CFPB Director Rohit Chopra said in a statement. “The CFPB will continue to prosecute those who engage in modern-day redlining.”

In the summer of 2020, the CFPB filed suit against Townstone, alleging that it violated Regulation B of the ECOA by drawing “almost no applications for properties in majority-African-American neighborhoods” and ”few applications from African Americans” in the Chicago metro area.

This amounted to discrimination, the CFPB alleged. In October 2020, Townstone moved to have the case dismissed. A federal judge in Illinois ruled in favor of Townstone in February 2023, but the CFPB vowed to appeal, which ultimately resulted in its authority under ECOA being reaffirmed by a three-judge panel.

The settlement agreement will need to be entered by the court, which has yet to take place.
The Pacific Legal Foundation is representing Townstone in this case. HousingWire reached out to the foundation’s listed lead attorney for the case but did not receive an immediate response.