Proposed settlement mandates compliance with ECOA and $105k penalty if court approves
Townstone Financial, a former Chicago-based mortgage lender, remained entangled in a high-profile legal dispute with the Consumer Financial Protection Bureau (CFPB) over allegations of discriminatory lending practices and redlining practices and avoiding predominantly Black neighborhoods in the Chicago area.
The CFPB has filed a proposed order that, if approved, would require Townstone pay a $105,000 penalty to the CFPB’s victims relief fund and comply with the Equal Credit Opportunity Act (ECOA).
The bureau’s proposed order followed lengthy contested litigation and a unanimous July 2024 decision from the United States Court of Appeals for the Seventh Circuit that upheld the ECOA’s protections, ruling that the act prohibits not only direct discrimination against loan applicants but also actions that discourage prospective applicants based on race or neighborhood demographics.
This decision reversed a previous district court ruling, sending the case back for further consideration.
The CFPB’s allegations, initially filed in 2020, claim that Townstone discouraged African American residents and potential borrowers from applying for credit and failed to meet the mortgage needs of predominantly Black neighborhoods in the Chicago area.
The company’s lending records from 2014 to 2017 showed that only about 2% of its applications were for properties in majority African American neighborhoods, which account for nearly 19% of the Chicago metropolitan area’s census tracts. Additionally, applications from neighborhoods over 80% African American were few, with most of those applicants being White.
Read more: CFPB sues Chicago mortgage company for discrimination
Townstone ceased mortgage lending in 2018 and now operates solely as a mortgage broker. If the proposed court order is finalized, Townstone could face further sanctions if it breaches the ECOA again.
“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.”
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