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.

Townstone characterized the settlement as “favorable” in a statement submitted to HousingWire after this story was originally published. It detailed that one element of the settlement is that “Barry Sturner, Townstone’s president and CEO, was dismissed from the case, and Townstone neither admits nor denies liability for the actions alleged in the complaint.”

“My family and I are relieved to finally put this nightmare behind us,” said Sturner in a statement. “The last six years have taken a toll on all of us.”

Steve Simpson, senior attorney with the Pacific Legal Foundation (PLF) who is representing Townstone in this matter, said the case should never have been brought.

“Unfortunately, the federal government possesses vast resources and the power to destroy lives and livelihoods, so settling is often the best approach for anyone facing a lawsuit of this kind,” Simpson said.

The PLF will “continue to fight overreach by CFPB and other federal agencies,” the organization said.

The move toward this resolution follows a lengthy court battle, 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.

Editor’s note: This story has been updated with perspective from Townstone, its founder and CEO and a senior Pacific Legal Foundation attorney representing the company.