Townstone Financial, Inc. and Barry Sturner
Documents in this case
- Complaint · · 19 p.
- Amended complaint · · 19 p.
- Opinion · · 26 p.
- Opinion · · 15 p.
- Stipulation · · 13 p.
- Stipulation · · 4 p.
- Document · · 10 p.
- Document · · 3 p.
- Memorandum · · 14 p.
- Order · · 15 p.
Case summary
On July 15, 2020, the Bureau filed a lawsuit against Townstone Financial, Inc., a nonbank retail-mortgage creditor and broker based in Chicago, Illinois, alleging violations under the Equal Credit Opportunity Act, its implementing regulation, Regulation B, and the Consumer Financial Protection Act of 2010. On November 25, 2020, the Bureau filed an amended complaint, which added as a defendant Barry Sturner, Townstone’s cofounder, sole owner, and sole director, as the alleged fraudulent transferee of more than $2.4 million from Townstone.
On November 7, 2024, the court entered a stipulated final judgment and order against Townstone, which imposed injunctive relief and a civil money penalty. On the same day, pursuant to the parties’ stipulation, the court dismissed the Bureau’s claim against Sturner.
On March 26, 2025, the parties jointly moved the court to vacate the stipulated final judgment and order on the grounds that there were significant undisclosed problems with the Bureau’s treatment of the case, resulting in unmerited investigation and litigation and the infringement of the defendants’ First Amendment rights. The court denied the motion on June 12, 2025.
Complaint ()
PDF of this document (19 pages)
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IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION Bureau of Consumer Financial ) Protection, ) Case No.
) Plaintiff, ) ) v.
) ) ) Townstone Financial, Inc., ) ) Defendant.
) COMPLAINT The Bureau of Consumer Financial Protection (“Bureau”) files this Complaint against Townstone Financial, Inc. (“Townstone”) and alleges as follows. INTRODUCTION 1.
The Bureau brings this action against Townstone under the Equal Credit Opportunity Act (“ECOA”), 15 U.S.C. §§ 1691–1691f, and the Consumer Financial Protection Act of 2010 (“CFPA”), 12 U.S.C. § 5536(a)(1)(A), to remedy discrimination in Townstone’s mortgage lending. 2.
ECOA and its implementing regulation, Regulation B, 12 C.F.R. pt. 1002, make it illegal for a creditor to discriminate against an applicant in any aspect of a credit transaction on the basis of, among other characteristics, race, color, or national origin. 15 U.S.C. § 1691(a); 12 C.F.R. § 1002.4(a). ECOA and Regulation B Case: 1:20-cv-04176 Document #: 1 Filed: 07/15/20 Page 1 of 18 PageID #:1
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prohibit any statements, acts, or practices that would discourage on a prohibited basis an applicant or prospective applicant from applying for credit. 15 U.S.C. § 1691(a); 12 C.F.R. § 1002.4(b); 12 C.F.R. pt. 1002, Supp. I, 1002.4(b)(1) (“In keeping with the purpose of the Act—to promote the availability of credit on a nondiscriminatory basis—§ 1002.4(b) covers acts or practices directed at prospective applicants that could discourage a reasonable person, on a prohibited basis, from applying for credit.”).
3.
Regulation B also provides that “prohibited basis” in ECOA includes “the characteristics of individuals with whom an applicant is affiliated or with whom the applicant associates,” such as “the race of other residents in the neighborhood where the property offered as collateral is located.” 12 C.F.R. pt. 202, Supp. I, 202.2(2)(z).
4.
From January 1, 2014, through December 31, 2017 (“the relevant period”), Townstone was a non-depository mortgage lender and mortgage broker exclusively engaged in retail-mortgage lending. Based on Home Mortgage Disclosure Act (“HMDA”) data from 2014 through 2017, Townstone received an average of 740 mortgage-loan applications each year. Townstone acted as a correspondent lender for the overwhelming majority of its business and also brokered an average of 60 total Federal Housing Administration and Veterans Administration home loans each year. During the relevant period, Townstone ranked in the top 10% of lenders that drew Case: 1:20-cv-04176 Document #: 1 Filed: 07/15/20 Page 2 of 18 PageID #:2
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applications from the Chicago-Naperville-Elgin Metropolitan Statistical Area (“Chicago MSA”).
5.
From at least 2014 through 2017, Townstone engaged in unlawful redlining and acts or practices directed at prospective applicants that would discourage prospective applicants, on the basis of race, from applying for credit in the Chicago MSA.
JURISDICTION AND VENUE 6.
This Court has subject-matter jurisdiction over this action because it is brought under “Federal consumer financial law,” 12 U.S.C. § 5565(a)(1); presents a federal question, 28 U.S.C. § 1331; and is brought by an agency of the United States, 28 U.S.C. § 1345.
7.
Venue is proper in this district because Townstone is located, resides, and does business in this district. 12 U.S.C. § 5564(f). 8.
The Bureau is an independent agency of the United States created by the CFPA. 12 U.S.C. § 5491(a). The Bureau has independent litigating authority, including the authority to enforce ECOA. 12 U.S.C. §§ 5564(a)–(b), 5481(12)(D) & (14). 9.
Townstone is incorporated in the State of Illinois and headquartered in Chicago. Townstone operates in five states—Illinois, Indiana, Michigan, Wisconsin, and Florida—with over 90% of its mortgage lending in the Chicago MSA. 10.
Townstone is subject to the federal laws governing fair lending, including ECOA and its implementing regulation, Regulation B. Case: 1:20-cv-04176 Document #: 1 Filed: 07/15/20 Page 3 of 18 PageID #:3
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11.
Townstone is a “creditor” under ECOA. 15 U.S.C. § 1691a(e). 12.
Townstone is a “covered person” under the CFPA. 12 U.S.C. § 5481(6)(A) & (15)(A)(i).
FACTUAL ALLEGATIONS 13.
During the relevant period, Townstone engaged in acts or practices directed at prospective applicants that discouraged, on the basis of race, prospective applicants from applying to Townstone for credit in the Chicago MSA. Specifically, 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 for mortgage loans.1 14.
In addition, during the relevant period, Townstone engaged in unlawful redlining by making these discouraging statements and engaging in additional acts or practices that (a) discouraged prospective applicants living in African-American neighborhoods in the Chicago MSA from applying to Townstone for mortgage loans; and (b) discouraged prospective applicants living in other areas from applying to Townstone for mortgage loans for properties in African-American neighborhoods in the Chicago MSA.
1 For purposes of this Complaint, “mortgage loans” refers to all loans that Townstone was required to report under HMDA, 12 U.S.C. §§ 2801–2810, and “mortgage lending” refers to providing those loans.
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15.
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, thereby discouraging prospective applicants from applying to Townstone for mortgage loans in those neighborhoods. 16.
A majority-African-American neighborhood or area is a census tract in which more than 50% of the residents are identified in the U.S. Census as either “Black or African American.” A high-African-American neighborhood or area is a census tract in which more than 80% of the residents are identified in the U.S. Census as either “Black or African-American.”
17.
The Chicago MSA comprises 14 counties in three states: Cook County, DuPage County, Grundy County, Kendall County, McHenry County, Will County, DeKalb County, Kane County, and Lake County, Illinois; Jasper County, Lake County, Newton County, and Porter County, Indiana; and Kenosha County, Wisconsin.
18.
As of 2010, the Chicago MSA included about 1.6 million African Americans.
19.
As of 2010, the Chicago MSA’s population was 9,461,105, of which 17% were African Americans. According to the U.S. Census Bureau, 30.1% of residents of the City of Chicago are African-American.
20.
As of 2010, 18.7% of the Chicago MSA’s 2,215 census tracts were majority-African-American and 13.8% were high-African-American. Case: 1:20-cv-04176 Document #: 1 Filed: 07/15/20 Page 5 of 18 PageID #:5
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21.
During the relevant period, Townstone drew about 2,700 mortgage-loan applications from and originated about 1,800 mortgage loans in the Chicago MSA. 22.
During the relevant period, Townstone drew over 90% of its mortgageloan applications for properties within the Chicago MSA. Townstone Financial Show 23.
Townstone’s business model was to market and draw mortgage-loan applications primarily through radio advertising. 24.
Throughout the relevant period, Townstone marketed through “The Townstone Financial Show,” its own radio show and podcast. Since at least 2014, the Townstone Financial Show has been directly affiliated with Townstone’s lending business. In 2014, the show was hosted by Townstone’s co-owner and president. Beginning in about January 2015, the Townstone Financial Show was co-hosted by Townstone’s CEO and now sole owner, its vice-president, who was also a loan officer, and another senior loan officer. Townstone generated up to 90% of its mortgage-loan applications from radio advertising, including through this show. 25.
During the relevant period, the Townstone Financial Show was distributed in two media: a weekly radio show on AM radio that reached the entire Chicago MSA and a weekly podcast available exclusively online. During the relevant period, all Townstone Financial Show radio broadcasts and podcasts were available on the Townstone website. Both the radio show and podcast were streamed on Facebook Live and then advertised on Facebook, Twitter, and LinkedIn. Case: 1:20-cv-04176 Document #: 1 Filed: 07/15/20 Page 6 of 18 PageID #:6
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26.
During the relevant period, Townstone’s website and the Townstone Financial Show described the hosts as “Chicago real-estate experts.” 27.
During the relevant period, the hosts started the Townstone Financial Show podcasts by stating Townstone’s licensing information, including that Townstone is a licensed mortgage broker/banker, NMLS number 136639, Illinois residential-mortgage licensee number 6629.
28.
During the relevant period, the Townstone Financial Show radio broadcasts included an introductory statement such as: “This show is brought to you by Townstone Financial, the home-loan expert since 2002. Townstone Financial is an Indiana, Michigan, Wisconsin, Florida, Illinois mortgage licensee 6629, NMLS 136639. Remember no one values your mortgage business more than Townstone Financial.”
29.
The Townstone Financial Show is an infomercial that also includes advertisements for Townstone during commercial breaks. During the relevant period, the hosts discussed mortgage-related issues and took questions from prospective applicants. The hosts regularly referred to their work at Townstone and promoted the benefits that potential applicants might expect from applying for mortgage loans from Townstone.
30.
During the relevant period, the co-hosts of the Townstone Financial Show made a number of statements on the show, across multiple episodes, that would discourage African-American prospective applicants from applying to Townstone for Case: 1:20-cv-04176 Document #: 1 Filed: 07/15/20 Page 7 of 18 PageID #:7
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mortgage loans, would discourage prospective applicants living in African-American neighborhoods from applying to Townstone for mortgage loans, and would discourage prospective applicants living in other areas from applying to Townstone for mortgage loans for properties in African-American neighborhoods. 31.
For example, in a January 2017 episode of the Townstone Financial Show, during which Townstone marketed its services, the hosts discussed a nowreplaced grocery store in downtown Chicago that was part of the Jewel-Osco grocerystore 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.” 32.
Referring to a neighborhood grocery store with “people from all over the world” as a “jungle”—a word that may be used or understood to be a derogatory reference associated with African Americans, Black people, and foreigners—and saying that the grocery store was “scary” would discourage African-American prospective applicants from applying for mortgage loans from Townstone; would discourage prospective applicants living in African-American neighborhoods from applying to Townstone for mortgage loans; and would discourage prospective applicants living in other areas from applying to Townstone for mortgage loans for properties in African-American neighborhoods.
33.
In a June 2016 episode of the Townstone Financial Show, before discussing the mortgage-lending services that Townstone could provide to police Case: 1:20-cv-04176 Document #: 1 Filed: 07/15/20 Page 8 of 18 PageID #:8
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officers and others, Townstone’s CEO stated that the South Side of Chicago between Friday and Monday is “hoodlum weekend” and that the police are “the only ones between that turning into a real war zone and keeping it where it’s kind of at.” Chicago’s South Side refers to the southern neighborhoods in the City of Chicago and is majority-African-American, with about 489,000 African Americans currently living there.
34.
A mortgage lender and self-described real-estate expert referring to Chicago’s South Side as “hoodlum weekend” would discourage prospective applicants living in the South Side from applying to Townstone for mortgage loans and would discourage prospective applicants living in other areas from applying to Townstone for mortgage loans for properties in this particular African-American community because the comments indicate that Townstone’s CEO, speaking during an official Townstone marketing program, believes that the area’s defining characteristic is that it is dangerous and full of criminals. Moreover, because the statement is disparaging toward a majority-African-American area, African-American prospective applicants throughout the Chicago MSA would also be discouraged from applying for mortgage loans from Townstone.
35.
In a November 11, 2017 episode of the Townstone Financial Show, during which Townstone marketed its services, Townstone’s senior loan officer discussed a recent skydiving experience and the ensuing “rush” from the jump; Townstone’s vice-president responded that he thought skydiving was crazy and Case: 1:20-cv-04176 Document #: 1 Filed: 07/15/20 Page 9 of 18 PageID #:9
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suggested that “walking through the South Side at 3AM [would] get the same rush.” 36.
Referring to a majority-African-American neighborhood—Chicago’s South Side—as a place where simply walking through it would provide a “rush” would discourage, on the basis of race, a prospective applicant living in or applying for a mortgage loan in that area from applying to Townstone because self-described real-estate experts are portraying the area as defined by its danger. And because the statement is disparaging toward a majority-African-American area, African-American prospective applicants would also be discouraged from applying for mortgage loans from Townstone.
37.
In January 2014, while wrapping up a radio broadcast of the Townstone Financial Show, during which Townstone marketed its services, Townstone’s president stated, “it’s a great time to buy, it’s a great time to rent, it’s a great time to sell.” He and that episode’s co-hosts, a local realtor and a bankruptcy attorney, then gave advice on how to get a home ready for sale, which included “change the light fixtures,” “paint it from top to bottom,” and “take down the Confederate flag.” 38.
Joking about a symbol of racial animus or implying that the Townstone Financial Show’s hosts and listeners might display such symbols in their homes would discourage African-American prospective applicants from applying for mortgage loans with Townstone; would discourage prospective applicants living in African- American neighborhoods from applying to Townstone for mortgage loans; and would discourage prospective applicants living in other areas from applying to Townstone Case: 1:20-cv-04176 Document #: 1 Filed: 07/15/20 Page 10 of 18 PageID #:10
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for mortgage loans for properties in African-American neighborhoods. 39.
During another radio broadcast in January 2014, during which Townstone marketed its services, a caller from Markham, Illinois, asked how he and his wife could improve their credit scores. Markham is a city in Cook County, Illinois, and its population is 80.3% Black or African-American, according to the U.S. Census Bureau. Townstone’s president responded that the caller’s wife is “a woman and she probably doesn’t have good credit because she’s a woman,” and that “[you’ve] got to keep those women in line over there in Markham.” After further discussing the couple’s credit concerns, he noted that “it’s crazy in Markham on weekends” and that “I know, I’ve been to Markham.” “You drive very fast through Markham,” he continued, “and you don’t look at anybody or lock on anybody’s eyes in Markham . . . . You look at your dashboard, you don’t lock on anybody.” Townstone’s president closed the segment by telling the caller to “stop spending freaking money [on his wife] and tell her to get a better job.” 40.
Disparaging a majority-African-American city as “crazy,” a place to be driven through quickly, and an area where people should avoid eye contact, would discourage African-American prospective applicants from applying to Townstone for mortgage loans; would discourage prospective applicants living in African-American neighborhoods from applying to Townstone for mortgage loans; and would discourage prospective applicants living in other areas from applying to Townstone for mortgage loans for properties in African-American neighborhoods. Case: 1:20-cv-04176 Document #: 1 Filed: 07/15/20 Page 11 of 18 PageID #:11
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Targeted Marketing 41.
Even though African Americans made up 30% of the population of the City of Chicago, Townstone made no effort to market directly to African-Americans during the relevant period.
42.
Townstone has not specifically targeted any marketing toward African- Americans in the Chicago MSA.
43.
Townstone employed 17 loan officers during the relevant period. Townstone did not employ an African-American loan officer during the relevant period, even though it was aware that hiring a loan officer from a particular racial or ethnic group could increase the number of applications from members of that racial or ethnic group.
Applications from African-American Neighborhoods 44.
At least during the relevant period, Townstone’s statements, acts, and practices directed at prospective applicants, including 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. 45.
Townstone drew few applications from African-American applicants throughout the Chicago MSA during the relevant period. From 2014 through 2017, Townstone drew about 2,700 applications, of which only 37 (1.4%) came from African-Americans in the Chicago MSA. During the same period, other mortgage Case: 1:20-cv-04176 Document #: 1 Filed: 07/15/20 Page 12 of 18 PageID #:12
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lenders in the Chicago MSA drew 1,217,223 applications, of which 119,370 (9.8%) came from African-American applicants.
46.
Similarly, Townstone drew almost no applications from prospective applicants applying for mortgage loans for properties in African-American neighborhoods. During the relevant period, Townstone drew an average of five or six applications each year (0.8%, 0.8%, 0.7%, and 0.9% of all Townstone applications) for properties in high-African-American neighborhoods, even though such neighborhoods made up 13.8% of the Chicago MSA’s census tracts. Of Townstone’s five or six applications each year for properties in high-African-American neighborhoods (more than 80% African-American), more than half each year were from non-Hispanic white applicants.
47.
Similarly, only 2.3%, 1.4%, 1.4%, and 2.2% of Townstone’s applications for the years 2014 through 2017, respectively, came from prospective applicants applying for mortgage loans for properties in majority-African-American areas, even though 18.7% of the Chicago MSA’s census tracts were majority-African-American. See Exhibit A.
48.
Statistical analyses of Townstone’s mortgage-loan applications in the Chicago MSA, as compared to its peer lenders during the relevant period, show disparities between Townstone and its peers in drawing mortgage-loan applications for properties in African-American neighborhoods. These disparities are statistically Case: 1:20-cv-04176 Document #: 1 Filed: 07/15/20 Page 13 of 18 PageID #:13
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significant2 and demonstrate that there were applicants seeking mortgage loans for properties in African-American neighborhoods in the Chicago MSA from Townstone’s peers in much higher proportions than from Townstone. These disparities further show that Townstone had no legitimate, non-discriminatory reason to draw relatively few applications for mortgage loans for properties in these African- American areas.
49.
Specifically, 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. While Townstone drew 2.3%, 1.4%, 1.4%, and 1.3% of its applications for properties in majority- African-American neighborhoods from 2014 through 2017, respectively, Townstone’s peers drew 8.2%, 7.6%, 7.7%, and 8.1%—3.6, 5.4, 5.5, and 6.2 times that of Townstone.
50.
Similarly, Townstone drew a significantly smaller proportion of mortgage-loan applications for properties in high-African-American neighborhoods than its peers operating in the Chicago MSA. While Townstone drew only 0.8%, 0.8%, 0.7%, and 0.9% of its applications for mortgage loans for properties in high- African-American census tracts from 2014 through 2017, respectively, other similar
2 Statistical significance measures the probability that an observed outcome could have occurred by chance. As used in this Complaint, an outcome is statistically significant if the probability that it could have occurred by chance is less than 5%. Case: 1:20-cv-04176 Document #: 1 Filed: 07/15/20 Page 14 of 18 PageID #:14
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lenders drew 5.3%, 4.9%, 5.1%, and 5.5% of their applications from such census tracts—6.3, 6.2, 7.7 and 6.1 times that of Townstone. 51.
The totality of Townstone’s statements, acts, and practices described herein constitute redlining of African-American neighborhoods in the Chicago MSA and discouragement on the basis of race. Townstone’s statements, acts, and practices directed at prospective applicants are intended to discourage prospective applicants on the basis of their race or the racial composition of their neighborhoods, or have the effect of discouraging on such bases, African Americans and prospective applicants seeking credit to purchase homes in majority-African-American neighborhoods in the Chicago MSA from obtaining mortgage loans. COUNT 1: ECOA VIOLATIONS 52.
The Bureau incorporates the allegations in Paragraphs 1–51 here by reference.
53.
Townstone’s statements, acts, and practices directed at prospective applicants discouraged, on the basis of race, prospective applicants from applying for credit and constituted unlawful redlining, in violation of Regulation B and ECOA. 12 C.F.R. § 1002.4(b); 15 U.S.C. § 1691(a)(1).
54.
Townstone discriminated against prospective applicants and applicants with respect to credit transactions on the basis of race, in violation of ECOA. 15 U.S.C. § 1691(a)(1).
55.
Townstone’s practices constitute a pattern or practice of discrimination Case: 1:20-cv-04176 Document #: 1 Filed: 07/15/20 Page 15 of 18 PageID #:15
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and discouragement, in violation of ECOA. 15 U.S.C. § 1691(a)(1). COUNT 2: CFPA VIOLATIONS 56.
The Bureau incorporates the allegations of Paragraphs 1–51 here by reference.
57.
Section 1036(a)(1)(A) of the CFPA prohibits a covered person from offering or providing to a consumer any financial product or service not in conformity with “Federal consumer financial law” or otherwise committing any act or omission in violation of a “Federal consumer financial law.” 12 U.S.C. § 5536(a)(1)(A).
58.
Townstone’s ECOA violations, described above in Count 1, constitute violations of § 1036(a)(1)(A) of the CFPA. 12 U.S.C. § 5536(a)(1)(A). DEMAND FOR RELIEF WHEREFORE, the Bureau requests that the Court enter an ORDER that: (1) declares that the statements, acts, and practices of Townstone constitute violations of ECOA, 15 U.S.C. §§ 1691–1691f; (2) requires Townstone, under 15 U.S.C. § 1691c(a)(9) and 12 U.S.C. § 5565(a), as well as Townstone’s agents, employees, successors, and all others in active concert or participation with Townstone, to: a.
not discriminate in any aspect of its mortgage-lending business on the basis of race or any other basis prohibited by ECOA, 15 U.S.C. § 1691(a); b.
take such affirmative steps as may be necessary to restore, as nearly as Case: 1:20-cv-04176 Document #: 1 Filed: 07/15/20 Page 16 of 18 PageID #:16
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practicable, the victims of Townstone’s unlawful conduct to the position they would have been in but for the discriminatory conduct; and c.
take such affirmative steps as may be necessary to prevent the recurrence of any such discriminatory conduct; to eliminate, to the extent practicable, the effect of Townstone’s unlawful practices; and to implement policies and procedures to ensure that all applicants and prospective applicants have an equal opportunity to seek and obtain loans on a non-discriminatory basis and with non-discriminatory terms and conditions; (3) awards damages, restitution, equitable, and other monetary relief, under 15 U.S.C. § 1691c(a)(9) and 12 U.S.C. § 5565; (4) assesses a civil money penalty against Townstone in an amount authorized by 12 U.S.C. § 5565(c);
(5) awards the costs of bringing this action; and (6) awards such additional relief as the interests of justice may require. // // // // // // // Case: 1:20-cv-04176 Document #: 1 Filed: 07/15/20 Page 17 of 18 PageID #:17
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Respectfully submitted,
THOMAS G. WARD Enforcement Director CARA PETERSEN Principal Deputy Enforcement Director JEFFREY PAUL EHRLICH Deputy Enforcement Director KARA K. MILLER Assistant Litigation Deputy
/s/ Michael G. Salemi MICHAEL G. SALEMI, IL ARDC 6279741 Email: [email protected] VINCENT HERMAN DC Bar #974596 Email: [email protected] BARRY REIFERSON NY Reg. #4343893 Email: [email protected]
230 S. Dearborn Street Suite 1590 Chicago, IL 60604
and
1700 G Street, NW Washington, DC 20552 Telephone: (202) 435-9599
Attorneys for the Bureau of Consumer Financial Protection
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EXHIBIT A Townstone Financial, Inc.
2014–2016 Applications by Property Address 2010 Census Data % African-American (Non-Hispanic) Case: 1:20-cv-04176 Document #: 1-1 Filed: 07/15/20 Page 1 of 1 PageID #:19
Amended complaint ()
PDF of this document (19 pages)
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IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION
Bureau of Consumer Financial ) Protection, ) Case No. 1:20-cv-04176
)
Plaintiff, )
) v.
)
)
) Townstone Financial, Inc. and ) Barry Sturner, )
) Defendants.
)
AMENDED COMPLAINT
The Bureau of Consumer Financial Protection (“Bureau”) files this Amended Complaint against Townstone Financial, Inc. (“Townstone”) and Barry Sturner (“Sturner”) and alleges as follows.
INTRODUCTION 1.
The Bureau brings this action under the Equal Credit Opportunity Act (“ECOA”), 15 U.S.C. §§ 1691–1691f; the Consumer Financial Protection Act of 2010 (“CFPA”), 12 U.S.C. § 5536(a)(1)(A); and Federal Debt Collection Procedure, 28 U.S.C. §§ 3301–3308.
2.
ECOA and its implementing regulation, Regulation B, 12 C.F.R. pt. 1002, make it illegal for a creditor to discriminate against an applicant in any aspect of Case: 1:20-cv-04176 Document #: 27 Filed: 11/25/20 Page 1 of 19 PageID #:114
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a credit transaction on the basis of, among other characteristics, race, color, or national origin. 15 U.S.C. § 1691(a); 12 C.F.R. § 1002.4(a). ECOA and Regulation B prohibit any acts or practices that would discourage on a prohibited basis an applicant or prospective applicant from applying for credit. 15 U.S.C. § 1691(a); 12 C.F.R. § 1002.4(b); 12 C.F.R. pt. 1002, Supp. I, 1002.4(b)(1) (“In keeping with the purpose of the Act—to promote the availability of credit on a nondiscriminatory basis— § 1002.4(b) covers acts or practices directed at prospective applicants that could discourage a reasonable person, on a prohibited basis, from applying for credit.”). 3.
Regulation B also provides that “prohibited basis” in ECOA includes “the characteristics of individuals with whom an applicant is affiliated or with whom the applicant associates,” such as “the race of other residents in the neighborhood where the property offered as collateral is located.” 12 C.F.R. pt. 202, Supp. I, 202.2(2)(z).
4.
Since January 1, 2014, Townstone has been a non-depository mortgage lender or mortgage broker exclusively engaged in mortgage lending.1 Townstone has acted as a correspondent lender for the majority of its business and also has brokered Federal Housing Administration and Veterans Administration home loans. From at least 2014 through 2017, Townstone ranked in the top 10% of lenders that drew
1 For purposes of this Complaint, “mortgage loans” refers to all loans that Townstone and other creditors were required to report under the Home Mortgage Disclosure Act (“HMDA”), 12 U.S.C. §§ 2801–2810, and “mortgage lending” refers to providing those loans.
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applications from the Chicago-Naperville-Elgin Metropolitan Statistical Area (“Chicago MSA”).
5.
Since at least 2014, Townstone has engaged in unlawful discrimination, including redlining and acts or practices that would discourage prospective applicants, on the basis of race, from applying for credit in the Chicago MSA. JURISDICTION AND VENUE 6.
This Court has subject-matter jurisdiction over this action because it is brought under “Federal consumer financial law,” 12 U.S.C. § 5565(a)(1); presents a federal question, 28 U.S.C. § 1331; and is brought by an agency of the United States, 28 U.S.C. § 1345.
7.
Venue is proper in this district because both Townstone and Sturner are located, reside, and do business in this district. 12 U.S.C. § 5564(f). 8.
The Bureau is an independent agency of the United States created by the CFPA. 12 U.S.C. § 5491(a). The Bureau has independent litigating authority, including the authority to enforce the CFPA and ECOA. 12 U.S.C. §§ 5564(a)–(b), 5481(12)(D), (14).
9.
Townstone is incorporated in the State of Illinois and headquartered in Chicago. Townstone operates in five states—Illinois, Indiana, Michigan, Wisconsin, and Florida—with most of its mortgage lending and brokering in the Chicago MSA. 10.
Townstone is subject to the federal laws governing fair lending, including ECOA and its implementing regulation, Regulation B. Case: 1:20-cv-04176 Document #: 27 Filed: 11/25/20 Page 3 of 19 PageID #:116
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11.
Townstone is a “creditor” under ECOA. 15 U.S.C. § 1691a(e). 12.
Townstone is a “covered person” under the CFPA. 12 U.S.C. § 5481(6)(A) & (15)(A)(i).
13.
Sturner is an Illinois resident and Townstone’s cofounder, sole owner, and sole director. Sturner serves as Townstone’s President and Chief Executive Officer, and he is also a loan officer. Sturner is a first transferee of all or almost all of Townstone’s liquid assets.
FACTUAL ALLEGATIONS 14.
Townstone has acted to meet the credit needs of majority-white neighborhoods in the Chicago MSA while avoiding the credit needs of majority- and high-African-American neighborhoods.
15.
A majority-African-American neighborhood or area is a census tract in which more than 50% of the residents are identified in the U.S. Census as either Black or African American. A high-African-American neighborhood or area is a census tract in which more than 80% of the residents are identified in the U.S. Census as either Black or African American.
16.
The Chicago MSA comprises 14 counties in three states: Cook County, DuPage County, Grundy County, Kendall County, McHenry County, Will County, DeKalb County, Kane County, and Lake County, Illinois; Jasper County, Lake County, Newton County, and Porter County, Indiana; and Kenosha County, Wisconsin.
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17.
As of 2010, the Chicago MSA included about 1.6 million African- American residents.
18.
As of 2010, the Chicago MSA’s population was 9,461,105, of which 17% were African Americans. According to the U.S. Census Bureau, 30.1% of the residents of the City of Chicago were African Americans. 19.
As of 2010, 18.7% of the Chicago MSA’s 2,215 census tracts were majority-African-American, and 13.8% were high-African-American. 20.
From 2014 through 2017, Townstone drew about 2,700 mortgage-loan applications from and originated about 1,800 mortgage loans in the Chicago MSA. 21.
From 2014 through 2017, Townstone drew over 90% of its mortgageloan applications for properties within the Chicago MSA. Townstone’s Marketing 22.
Since at least 2014, Townstone has engaged in acts or practices directed at prospective applicants that, together and separately, would discourage prospective applicants, on the basis of race, from seeking or obtaining credit for properties within the Chicago MSA.
23.
Townstone’s business model has been to market and draw mortgageloan applications primarily through radio advertising. 24.
Starting at least as early as 2014, Townstone has marketed through “The Townstone Financial Show,” its own radio show and podcast.
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25.
Townstone has generated up to 90% of its mortgage-loan applications from radio advertising, including through the Townstone Financial Show. 26.
The Townstone Financial Show is a long-form commercial advertisement, which Townstone refers to as an infomercial, that also includes shorter advertisements for Townstone during commercial breaks. Since 2014, the Townstone Financial Show hosts have discussed mortgage-related issues on the show and have taken questions from prospective applicants. The hosts have regularly referred to their work at Townstone and promoted the benefits that prospective applicants might expect from applying for mortgage loans from Townstone. 27.
Since about January 2015, the Townstone Financial Show has been cohosted by Sturner and another senior loan officer. 28.
Townstone’s website and the Townstone Financial Show have described the hosts of the Townstone Financial Show as “Chicago real-estate experts.” 29.
Starting at least as early as 2014, the Townstone Financial Show was conducted weekly on AM radio and reached the entire Chicago MSA. A weekly podcast of the radio show has been available exclusively online. Townstone Financial Show radio broadcasts and podcasts have been available on the Townstone website. Both the radio show and podcast have been streamed on Facebook Live and then advertised on Facebook, Twitter, and LinkedIn. 30.
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mortgage broker/banker, NMLS number 136639, Illinois residential-mortgage licensee number 6629.
31.
The Townstone Financial Show radio broadcasts have typically included an introductory statement such as: “This show is brought to you by Townstone Financial, the home-loan expert since 2002. Townstone Financial is an Indiana, Michigan, Wisconsin, Florida, Illinois mortgage licensee 6629, NMLS 136639. Remember no one values your mortgage business more than Townstone Financial.” 32.
The Townstone Financial Show has regularly included statements that would discourage African-American prospective applicants from applying for mortgage loans, or making or pursuing an application, including from Townstone; would discourage prospective applicants living in majority- or high-African-American neighborhoods from applying for mortgage loans, or making or pursuing an application, including from Townstone; and would discourage prospective applicants from applying for mortgage loans, or making or pursuing an application, for properties in majority- or high-African-American neighborhoods, including from Townstone.
33.
For example, during a January 2014 broadcast in which Townstone marketed its services, a caller from Markham, Illinois, asked how he and his wife could improve their credit scores. Markham is a city in Cook County, Illinois, and its population is 80.3% African American, according to the U.S. Census Bureau. Referring to the women of this predominately African-American area, the Townstone Case: 1:20-cv-04176 Document #: 27 Filed: 11/25/20 Page 7 of 19 PageID #:120
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Financial Show’s host responded that “[you’ve] got to keep those women in line over there in Markham.” The host went so far as to presume that the caller should “stop spending freaking money [on his wife] and tell her to get a better job.” While discussing the couple’s credit concerns, the host turned his comments toward Markham generally, claiming that “it’s crazy in Markham on weekends” and stating, “I know, I’ve been to Markham.” “You drive very fast through Markham,” he continued, “and you don’t look at anybody or lock on anybody’s eyes in Markham . . . . You look at your dashboard, you don’t lock on anybody.” 34.
In another January 2014 broadcast of the Townstone Financial Show, during which Townstone marketed its services, Townstone’s then-president encouraged listeners that “it’s a great time to buy, it’s a great time to rent, it’s a great time to sell.” The show’s hosts, including a local realtor and a bankruptcy attorney, then recommended that listeners preparing a home for sale should “take down the Confederate flag.”
35.
In a June 2016 episode of the Townstone Financial Show, during which Townstone marketed its services, before discussing the mortgage-lending services that Townstone could provide to police officers and others, Sturner volunteered his view of the South Side of Chicago. The South Side refers to the southern neighborhoods in the City of Chicago and is majority-African-American, with about 489,000 African American or Black residents. According to Sturner, that part of the city between Friday and Monday is “hoodlum weekend,” and the police are “the only ones between Case: 1:20-cv-04176 Document #: 27 Filed: 11/25/20 Page 8 of 19 PageID #:121
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that [area] turning into a real war zone and keeping it where it’s kind of at.” 36.
In a January 2017 episode of the Townstone Financial Show, during which Townstone marketed its services, the hosts discussed a now-replaced grocery store in downtown Chicago that was part of the Jewel-Osco grocery-store chain. Sturner described “[having] to go to the Jewel on Division,” which he referred to as “Jungle Jewel.” Sturner described the “Jungle Jewel” as “a scary place,” attributing his fear and the store’s nickname to the “Jungle Jewel’s” patrons who “packed” the store and “were people from all over the world.”
37.
In a November 2017 episode of the Townstone Financial Show, during which Townstone marketed its services, Townstone’s senior loan officer discussed a recent skydiving experience and the ensuing “rush” from the jump; another Townstone host responded that he thought skydiving was crazy and suggested that someone “walking through the South Side at 3AM [would] get the same rush.” 38.
Through the Townstone Financial Show, Townstone has characterized areas and people in a manner that would discourage those who identify or associate with those areas or people from applying for credit. For example, the Townstone Financial Show’s hosts have disparaged majority-African-American areas as “hoodlum weekend” and approaching “a real war zone” or as “crazy” and places “to be driven through quickly” while avoiding eye contact; they have referred to a place with “people from all over the world” as a “jungle” and “scary”; they have disparaged the
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women of a predominantly African-American area; and their home-selling advice has included recommendations regarding displays of the Confederate flag. 39.
A prospective applicant is reasonable to consider statements made by loan officers, realtors, and others marketing themselves as real-estate experts when making decisions about a property or seeking credit. And a reasonable prospective applicant would consider the characteristics of prospective neighborhoods, including the neighborhoods’ safety or dangerousness, when making decisions about a property or seeking credit.
40.
Even though African Americans made up 30% of the population of the City of Chicago, Townstone has not targeted any marketing toward African Americans in the Chicago MSA.
41.
Townstone has engaged in unlawful conduct by engaging in acts or practices that would discourage African-American prospective applicants from applying for mortgage loans, or making or pursuing an application, including from Townstone; would discourage prospective applicants living in majority- or high- African-American neighborhoods from applying for mortgage loans, or making or pursuing an application, including from Townstone; and would discourage prospective applicants from applying for mortgage loans, or making or pursuing an application, for properties in majority- or high-African-American neighborhoods, including from Townstone.
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Applications from African-American Neighborhoods 42.
Based on HMDA data from 2014 through 2017, Townstone received an average of 740 mortgage-loan applications each year. Townstone brokered an average of 60 total Federal Housing Administration and Veterans Administration home loans each year.
43.
Townstone has drawn few applications from African-American applicants throughout the Chicago MSA. From 2014 through 2017, Townstone drew about 2,700 applications, of which only 37 (1.4%) came from African Americans in the Chicago MSA. During the same period, other mortgage lenders in the Chicago MSA drew 1,217,223 applications, of which 119,370 (9.8%) came from African- American applicants.
44.
Similarly, from 2014 through 2017, Townstone drew almost no applications from applicants applying for mortgage loans for properties in majority- African-American neighborhoods. During the same period, Townstone drew an average of five or six applications each year (0.8%, 0.8%, 0.7%, and 0.9% of all Townstone applications) for properties in high-African-American neighborhoods, even though such neighborhoods made up 13.8% of the Chicago MSA’s census tracts. Of Townstone’s five or six applications each year for properties in high-African- American neighborhoods (more than 80% African American), more than half each year were from non-Hispanic white applicants.
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45.
Similarly, only 2.3%, 1.4%, 1.4%, and 2.2% of Townstone’s applications for the years 2014 through 2017, respectively, came from applicants applying for mortgage loans for properties in majority-African-American areas, even though 18.7% of the Chicago MSA’s census tracts were majority-African-American. 46.
Statistical analyses of Townstone’s mortgage-loan applications in the Chicago MSA, as compared to its peer lenders during the same period, show disparities between Townstone and its peers in drawing mortgage-loan applications for properties in African-American neighborhoods. 47.
These disparities are statistically significant and demonstrate that there were applicants seeking mortgage loans for properties in African-American neighborhoods in the Chicago MSA from Townstone’s peers in much higher proportions than from Townstone.
48.
Townstone had no legitimate, non-discriminatory reason to draw relatively few applications for mortgage loans for properties in these majority-African- American areas.
49.
Townstone drew a significantly smaller proportion of mortgage-loan applications for properties in majority-African-American neighborhoods than did its peer lenders operating in the Chicago MSA. While Townstone drew 2.3%, 1.4%, 1.4%, and 1.3% of its applications for properties in majority-African-American neighborhoods from 2014 through 2017, respectively, Townstone’s peers drew many times more—8.2%, 7.6%, 7.7%, and 8.1%.
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50.
Similarly, Townstone drew a significantly smaller proportion of mortgage-loan applications for properties in high-African-American neighborhoods than its peers operating in the Chicago MSA. While Townstone drew only 0.8%, 0.8%, 0.7%, and 0.9% of its applications for mortgage loans for properties in high- African-American census tracts from 2014 through 2017, respectively, other similar lenders drew 5.3%, 4.9%, 5.1%, and 5.5% of their applications from such census tracts—6.3, 6.2, 7.7 and 6.1 times that of Townstone. 51.
Townstone employed 17 loan officers from 2014 through 2017. Townstone did not employ an African-American loan officer during that period, even though it was aware that hiring a loan officer from a particular racial or ethnic group could increase the number of applications from members of that racial or ethnic group.
52.
Townstone’s hiring practices, consumer outreach, consumer interactions, and other business acts or practices exclude or treat differently African- American prospective applicants for credit, as well as prospective applicants for credit in African-American census tracts.
COUNT 1: ECOA VIOLATIONS—TOWNSTONE 53.
The Bureau incorporates the allegations in Paragraphs 1–52 here by reference.
54.
Townstone’s acts or practices would discourage from seeking credit, on the basis of race or the racial composition of neighborhoods, African-American Case: 1:20-cv-04176 Document #: 27 Filed: 11/25/20 Page 13 of 19 PageID #:126
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prospective applicants, as well as those who identify or associate with, and those seeking credit in, majority- and high-African-American neighborhoods in the Chicago MSA.
55.
Townstone’s discouragement on the basis of race constitutes unlawful discrimination in violation of Regulation B and ECOA. 15 U.S.C. § 1691 et seq.; 12 C.F.R. § 1002.4(b).
56.
Townstone’s acts or practices discriminate against African-American prospective applicants, as well as those seeking credit in majority- and high-African- American neighborhoods in the Chicago MSA.
57.
Townstone’s discrimination with respect to credit transactions on the basis of race or the racial character of neighborhoods within the Chicago MSA violates ECOA. 15 U.S.C. § 1691 et seq.
58.
Townstone’s conduct constitutes a pattern or practice of discrimination and discouragement, in violation of ECOA. 15 U.S.C. § 1691 et seq. COUNT 2: CFPA VIOLATIONS—TOWNSTONE
59.
The Bureau incorporates the allegations of Paragraphs 1–52 here by reference.
60.
Section 1036(a)(1)(A) of the CFPA prohibits a covered person from offering or providing to a consumer any financial product or service not in conformity with “Federal consumer financial law” or otherwise committing any act or Case: 1:20-cv-04176 Document #: 27 Filed: 11/25/20 Page 14 of 19 PageID #:127
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omission in violation of a “Federal consumer financial law.” 12 U.S.C. § 5536(a)(1)(A).
61.
Townstone’s ECOA violations, described above in Count 1, constitute violations of § 1036(a)(1)(A) of the CFPA. 12 U.S.C. § 5536(a)(1)(A); 15 U.S.C. § 1691c(b).
COUNT 3: FRAUDULENT TRANSFER—STURNER
62.
The Bureau incorporates the allegations of Paragraphs 1–52 here by reference.
63.
Townstone transferred more than $2.4 million to Sturner in December 2018 and January 2019 (“the Transfer”).
64.
After the Transfer, Townstone was insolvent or soon became insolvent. 65.
After the Transfer, Townstone had no cash. 66.
After the Transfer, Townstone had less than $100,000 worth of liquid assets.
67.
After the Transfer, Townstone retained possession or control of the transferred money.
68.
Townstone and the Bureau had discussed the Bureau’s potential suit in the months preceding the Transfer.
69.
Townstone did not receive reasonably equivalent value from Sturner for Townstone’s $2.4 million.
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70.
Townstone did not receive anything of value from Sturner for Townstone’s $2.4 million.
71.
Sturner made the decision on Townstone’s behalf for Townstone to transfer $2.4 million to Sturner.
72.
Townstone and Sturner engaged in the Transfer with actual intent to hinder, delay, or defraud the Bureau.
73.
When Townstone and Sturner engaged in the Transfer, Townstone believed, or reasonably should have believed, that it would incur a debt to the Bureau beyond Townstone’s ability to pay.
74.
When Townstone and Sturner engaged in the Transfer, Townstone and Sturner believed or reasonably should have believed that Townstone would incur a debt to the Bureau greater than the value of Townstone’s remaining liquid assets. 75.
When Townstone and Sturner engaged in the Transfer, Townstone and Sturner believed or reasonably should have believed that Townstone would incur other financial obligations beyond Townstone’s ability to pay, including payroll, taxes, property rental, utility costs, marketing costs, and legal costs. 76.
After Townstone and Sturner engaged in the Transfer, Sturner paid Townstone’s bills.
77.
After Townstone and Sturner engaged in the Transfer, Sturner paid Townstone’s bills using, at least in part, the money Sturner received in the Transfer. Case: 1:20-cv-04176 Document #: 27 Filed: 11/25/20 Page 16 of 19 PageID #:129
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78.
Under 28 U.S.C. §§ 3301-3308, the Transfer was fraudulent as to the Bureau and as to any Townstone debt to the Bureau.
DEMAND FOR RELIEF The Bureau requests that the Court enter an order that: (1) declares that Townstone’s acts and practices constitute violations of ECOA, 15 U.S.C. §§ 1691–1691f;
(2) requires Townstone, under 15 U.S.C. § 1691c(a)(9) and 12 U.S.C. § 5565(a), as well as Townstone’s agents, employees, successors, and all others in active concert or participation with Townstone, to: a.
not discriminate in any aspect of its mortgage-lending business on the basis of race or any other basis prohibited by ECOA, 15 U.S.C. § 1691(a); b.
take such affirmative steps as may be necessary to restore, as nearly as practicable, the victims of Townstone’s unlawful conduct to the position they would have been in but for the discriminatory conduct; and c.
take such affirmative steps as may be necessary to prevent the recurrence of any such discriminatory conduct; to eliminate, to the extent practicable, the effect of Townstone’s unlawful practices; and to implement policies and procedures to ensure that all prospective applicants have an equal opportunity to seek and obtain loans on a non-discriminatory basis and with nondiscriminatory terms and conditions;
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(3) awards damages, restitution, equitable, and other monetary relief, under 15 U.S.C. § 1691c(a)(9) and 12 U.S.C. § 5565; (4) assesses a civil money penalty against Townstone in an amount authorized by 12 U.S.C. § 5565(c);
(5) declares that Townstone’s transfer of money to Sturner in December 2018 and January 2019 was fraudulent under 28 U.S.C. §§ 3301-3308; (6) allows the Bureau to avoid the Transfer to the extent necessary to satisfy any monetary judgment entered in this case against Townstone; (7) compels Sturner to transfer to the Bureau, in a manner to be prescribed by the Bureau, all money transferred by Townstone to Sturner up to the amount necessary to satisfy any monetary judgment entered in this case against Townstone; (8) awards any other relief to the Bureau that is available under the law and necessary to restore the Bureau to the position it would have been upon entry of judgment in this case if Townstone and Sturner had not engaged in a fraudulent transfer;
(9) awards to the Bureau the costs of bringing this action; and (10) awards to the Bureau such additional relief as the interests of justice may require.
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Respectfully submitted,
THOMAS G. WARD Enforcement Director CARA PETERSEN Principal Deputy Enforcement Director JEFFREY PAUL EHRLICH Deputy Enforcement Director KARA K. MILLER Assistant Litigation Deputy
/s/ Barry Reiferson
BARRY REIFERSON NY Reg. #4343893 Email: [email protected] VINCENT HERMAN DC Bar #974596 Email: [email protected] MARY E. OLSON, IL ARDC 6297334 Email: [email protected] MICHAEL G. SALEMI, IL ARDC 6279741 Email: [email protected]
230 S. Dearborn Street Suite 1590 Chicago, IL 60604
and
1700 G Street, NW Washington, DC 20552 Telephone: (202) 435-9599
Attorneys for the Bureau of Consumer Financial Protection
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Opinion ()
PDF of this document (26 pages)
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IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION
BUREAU OF CONSUMER FINANCIAL PROTECTION,
Plaintiff,
v.
TOWNSTONE FINANCIAL, INC. and BARRY STURNER,
Defendants.
No. 20-cv-4176 Judge Franklin U. Valderrama
MEMORANDUM OPINION AND ORDER
The Equal Credit Opportunity Act (ECOA) makes it “unlawful for any creditor to discriminate against any applicant with, respect to any aspect of a credit transaction . . . on the basis of race, color, religion, national origin, sex or marital status, or age . . . .” 15 U.S.C. § 1691(a). The ECOA’s implementing regulation, Regulation B, extends the ECOA’s prohibition to “prospective applicants.” 12 C.F.R. § 1002.4(b). The Bureau of Consumer Financial Protection (CFPB) filed this lawsuit against Townstone Financial, Inc. (Townstone), a mortgage broker/lender and its owner Barry Sturner (Sturner) (collectively, Defendants) for allegedly discouraging prospective African-American applicants in the Chicago metropolitan area from applying for mortgages. R. 27, First Amended Complaint (FAC).1 Defendants have moved to dismiss the FAC with prejudice. R. 31, Mot. Dismiss. For the following reasons, Defendants’ motion to dismiss is granted.
1Citations to the docket are indicated by “R.” followed by the docket number and, where necessary, a page or paragraph citation.
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Background I.
The Parties
The CFPB is an independent agency of the United States created by the Consumer Financial Protection Act of 2010 (CFPA), with authority to enforce the CFPA and ECOA. FAC ¶ 8.2 Townstone is a mortgage broker/lender headquartered in Chicago, which operates in Illinois, Indiana, Michigan, Wisconsin, and Florida. Id. ¶ 9. Most of Townstone’s mortgage lending and brokering takes place in the Chicago- Naperville-Elgin Metropolitan Statistical Area (Chicago MSA). Id. ¶¶ 4, 9. Sturner is Townstone’s co-founder, sole owner, sole director, President, and Chief Executive Officer. Id. ¶ 13. Sturner is also a loan officer. Id. II.
The Townstone Financial Show
Starting as early as 2014, Townstone has marketed its services through its own radio show and podcast called “The Townstone Financial Show.” FAC ¶ 24. The Townstone Financial Show was conducted weekly on AM radio and reached the entire Chicago MSA. Id. ¶ 29. A weekly podcast of the radio show is also made available online, and the show has been streamed on Facebook Live and advertised on Facebook, Twitter, and LinkedIn. Id. The Townstone Financial Show is a long-form commercial advertisement, in which the hosts discuss mortgage-related issues on the show and take questions from prospective applicants. Id. ¶ 26. Since about January 2015, the Townstone Financial Show has been co-hosted by Sturner and another
2The Court accepts as true all of the well-pled facts in the FAC and draws all reasonable inferences in favor of the CFPB. Smith v. City of Chicago, 3 F.4th 332, 334 n.1 (7th Cir. 2021) (internal citation omitted).
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senior loan officer. Id. ¶ 27. Townstone’s website and the Townstone Financial Show characterize the hosts of the Townstone Financial Show as “Chicago real-estate experts.” Id. ¶ 28.
The Townstone Financial Show has allegedly included statements that would discourage African-American prospective applicants from applying for mortgage loans from Townstone. FAC ¶ 32. For instance, during a January 2014 broadcast of the Townstone Financial Show, a caller from Markham, Illinois, a city with an 80.3% African-American population, asked how he and his wife could improve their credit scores. Id. ¶ 33. The Townstone host responded that “[you’ve] got to keep those women in line over there in Markham.” Id. The host went on to state that the caller should “stop spending freaking money [on his wife] and tell her to get a better job.” Id. While discussing the couple’s credit concerns, the host turned his comments toward Markham generally, claiming that “it’s crazy in Markham on weekends” and stating, “I know, I’ve been to Markham.” Id. “You drive very fast through Markham,” he continued, “and you don’t look at anybody or lock on anybody’s eyes in Markham . . . . You look at your dashboard, you don’t lock on anybody.” Id.
In the same month, Townstone’s then-president informed listeners on the Townstone Financial Show that it was a great time to buy, rent, and sell. FAC ¶ 34. The show’s hosts, including a local realtor and a bankruptcy attorney, recommended that the listeners who were preparing a home for sale should take down their Confederate flags. Id.
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In a June 2016 episode of the Townstone Financial Show, Sturner volunteered his view of the South Side of Chicago, an area that is majority-African American. FAC ¶ 35. Sturner stated that the South Side of Chicago is “hoodlum weekend” between Friday and Monday, and that the police are “the only ones between that [area] turning into a real war zone and keeping it where it’s kind of at.” Id.
In January 2017, on the Townstone Financial Show, Sturner and the other hosts discussed a now-replaced grocery store in downtown Chicago that was part of the Jewel-Osco grocery-store chain. FAC ¶ 36. Sturner described “[having] to go to the Jewel on Division,” which he referred to as “Jungle Jewel.” Id. Sturner called the “Jungle Jewel” a “scary place,” attributing his fear and the store’s nickname to the “Jungle Jewel’s” patrons who “packed” the store and “were people from all over the world.” Id.
In a November 2017 episode, Townstone’s senior loan officer discussed a recent skydiving experience and the ensuing “rush” from the jump. FAC ¶ 37. Another Townstone host responded that he thought skydiving was crazy, and suggested that someone who walked “through the South Side at 3AM.” could get the “same rush.” Id. Despite African Americans making up 30% of the population of the City of Chicago, Townstone has not targeted any marketing toward African Americans in the Chicago MSA. FAC ¶ 40.
III.
Applications from African-American Neighborhoods
Based on Home Mortgage Disclosure Act data from 2014 through 2017, Townstone received an average of 740 mortgage-loan applications each year. FAC Case: 1:20-cv-04176 Document #: 110 Filed: 02/03/23 Page 4 of 26 PageID #:657
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¶ 42. Townstone brokered an average of 60 total Federal Housing Administration and Veterans Administration home loans each year. Id.
Townstone has drawn few mortgage applications from African-American applicants throughout the Chicago MSA. FAC ¶ 43. From 2014 to 2017, for example, Townstone drew around 2,700 applicants, only 37 (1.4%) of which came from African Americans in the Chicago MSA. Id. During the same period, Townstone drew an average of five or six applications each year (0.8%, 0.8%, 0.7%, and 0.9% of all Townstone applications) for properties in high-African-American neighborhoods, even though such neighborhoods made up 13.8% of the Chicago MSA’s census tracts. Id. ¶ 44. Of Townstone’s five or six applications each year for properties in high- African-American neighborhoods (more than 80% African American), more than half each year were from non-Hispanic white applicants. Id. Similarly, only 2.3%, 1.4%, 1.4%, and 2.2% of Townstone’s applications for the years 2014 through 2017, respectively, came from applicants applying for mortgage loans for properties in majority-African-American areas, even though 18.7% of the Chicago MSA’s census tracts were majority-African American. FAC ¶ 45. While Townstone drew 2.3%, 1.4%, 1.4%, and 1.3% of its applications for properties in majority-African-American neighborhoods from 2014 through 2017, respectively, Townstone’s peers drew many times more—8.2%, 7.6%, 7.7%, and 8.1%. Id. ¶ 49. IV.
Procedural History
The CFPB filed suit against Defendants on July 15, 2020, R. 1, and amended its complaint on November 25, 2020, FAC. The three-count complaint alleges that: Case: 1:20-cv-04176 Document #: 110 Filed: 02/03/23 Page 5 of 26 PageID #:658
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(1) Townstone violated the ECOA, 15 U.S.C. § 1691(a), and its implementing regulation, Regulation B, 12 C.F.R. § 1002.4(b) (Count I); (2) Townstone violated the CFPA, 12 U.S.C. § 5536(a)(1)(A) (Count II); and (3) Sturner fraudulently transferred assets in violation of 28 U.S.C. §§ 3301–3308. FAC ¶¶ 53–78. Defendants have moved to dismiss the FAC. Mot. Dismiss. Defendants subsequently filed a motion for leave to file a notice of supplemental authority regarding W. Virginia v. Env’t Prot. Agency, 213 L. Ed. 2d 896, 142 S. Ct. 2587 (2022). R. 65; R. 67. The CFPB responded to Defendants’ notice of supplemental authority. R. 71.3 The Court subsequently held an in-person hearing on Defendants’ motion to dismiss the FAC. R. 74. Legal Standard A motion to dismiss under Rule 12(b)(6) challenges the sufficiency of the complaint. Hallinan v. Fraternal Order of Police of Chi. Lodge No. 7, 570 F.3d 811, 820 (7th Cir. 2009). Under Rule 8(a)(2), a complaint must include only “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). To survive a motion to dismiss, a complaint need only contain factual allegations, accepted as true, sufficient to “state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial plausibility when the plaintiff pleads
3In West Virginia, the Supreme Court held that the Environmental Protection Agency (EPA) did not have authority to adopt the regulation at issue because it raised a “major question” of ”economic and political significance” as to which Congress had not clearly delegated authority to the EPA. 142 S. Ct. at 2613. The Court has considered Defendants’ arguments as to the applicability of West Virginia to this case, R. 67, and the CFPB’s response, R. 71, and agrees with the CFPB that the major-questions doctrine is unimportant to the issue presented here.
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factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556). The allegations “must be enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555. The allegations that are entitled to the assumption of truth are those that are factual, rather than mere legal conclusions. Iqbal, 556 U.S. at 678–79.
Analysis I.
The ECOA and Regulation B (Count I)
The CFPB alleges that Townstone’s acts and practices would discourage African-American prospective applicants, as well as prospective applicants in majority- and high-African-American neighborhoods in the Chicago MSA from seeking credit, in violation of Regulation B and the ECOA. FAC ¶¶ 54–55. The ECOA provides, in relevant part, that “[i]t shall be unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction—on the basis of race, color, religion, national origin, sex or marital status, or age (provided the applicant has the capacity to contract) . . . .” 15 U.S.C. § 1691(a). The ECOA was a landmark civil rights law enacted in 1974 to protect individuals and businesses against discrimination in accessing and using credit, “a virtual necessity of life” for most Americans. S. Rep. No. 94-589, at 3–4 (1976); see also Treadway v. Gateway Chevrolet Oldsmobile Inc., 362 F.3d 971, 975 (7th Cir. 2004) (the ECOA enacted to prohibit discrimination in credit transactions). Case: 1:20-cv-04176 Document #: 110 Filed: 02/03/23 Page 7 of 26 PageID #:660
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In Section 1691b of the ECOA, Congress directed, first the Federal Reserve Board, and then the CFPB,4 to make regulations to carry out the purposes of the ECOA:
The Bureau shall prescribe regulations to carry out the purposes of this subchapter. These regulations may contain but are not limited to such classifications, differentiation, or other provision, and may provide for such adjustments and exceptions for any class of transactions, as in the judgment of the Bureau are necessary or proper to effectuate the purposes of this subchapter, to prevent circumvention or evasion thereof, or to facilitate or substantiate compliance therewith.
15 U.S.C. § 1691b(a).
The resulting regulations enacted in 1975, known collectively as Regulation B, provide in pertinent part:
Discouragement. A creditor shall not make any oral or written statement, in advertising or otherwise, to applicants or prospective applicants that would discourage on a prohibited basis a reasonable person from making or pursuing an application.
12 C.F.R. § 1002.4(b).
Defendants move to dismiss Count I based on Regulation B and the ECOA, arguing that the CFPB improperly attempts to expand the ECOA’s reach beyond the express and unambiguous language of the statute. R. 32, Memo. Dismiss at 5 (citing Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842– 43 (1984)). Specifically, Defendants argue that while the ECOA regulates behavior towards applicants for credit, it does not regulate any behavior relating to prospective
4In 2010, Congress transferred the Federal Reserve Board’s rulemaking authority to the CFPB. Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124 Stat. 1376, 2083–84 (2010); see Regions Bank v. Legal Outsource PA, 936 F.3d 1184, 1208 n.9 (11th Cir. 2019).
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applicants who have not yet applied for credit. Memo Dismiss at 4. The CFPB responds that Regulation B’s longstanding discouragement prohibition is authorized by and necessary to the ECOA, and that courts have consistently recognized Regulation B’s discouragement prohibition, even when applied to prospective applicants. R. 35, Resp. at 8–10 (citing Alexander v. AmeriPro Funding, Inc., 848 F.3d 698 (5th Cir. 2017); Dhade v. Huntington Learning Centers, Inc., 414 F. Supp. 3d 703 (D. Del. 2019); Page v. Midland Fed. Sav. & Loan Ass’n, 2013 WL 5211747, at *5 (N.D. Ill. Sept. 13, 2013)).
The parties’ arguments present the question of whether the agency’s interpretation of the ECOA in Regulation B is one that the ECOA permits. The Court approaches that inquiry, as it must, “through the two-step framework set forth in Chevron[.]” Cook Cnty., Illinois v. Wolf, 962 F.3d 208, 221 (7th Cir. 2020) (citing Chevron, 467 U.S. 837). The first step of Chevron is to determine “whether Congress has directly spoken to the precise question at issue.” Id. (internal quotation marks omitted). If Congress has spoken to the precise question at issue “unambiguously,” then “that is the end of it: the agency and courts alike are bound by what Congress wrote.” Id. However, if Congress has “not spoken clearly,” the court moves on to step two, in which the court “consider[s] whether the agency’s interpretation reflects a permissible construction of the statute.” Id.
A. Chevron Step One Turning to step one of Chevron, as stated above, the Court looks to the text of the ECOA to determine “whether Congress has directly spoken to the precise question Case: 1:20-cv-04176 Document #: 110 Filed: 02/03/23 Page 9 of 26 PageID #:662
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at issue,” Wolf, 962 F.3d at 221, namely, whether the ECOA prohibits discouragement of prospective applicants on the basis of race. “Statutory construction must begin with the language employed by Congress and the assumption that the ordinary meaning of that language accurately expresses the legislative purpose.” Turley v. Gaetz, 625 F.3d 1005, 1008 (7th Cir. 2010) (quoting Park ’N Fly, Inc. v. Dollar Park & Fly, Inc., 469 U.S. 189, 194 (1985)) (internal quotation marks omitted). “Statutory interpretation is guided not just by a single sentence or sentence fragment, but by the language of the whole law, and its object and policy.” Commodity Futures Trading Comm’n v. Worth Bullion Grp., Inc., 717 F.3d 545, 550 (7th Cir. 2013) (internal quotation marks and citation omitted). “Indeed, statutory interpretation is a holistic endeavor and, at a minimum, must account for the statute’s full text, language as well as punctuation, structure, and subject matter.” Trs. of Chi. Truck Drivers, Helpers & Warehouse Workers Union (Indep.) Pension Fund v. Leaseway Transp. Corp., 76 F.3d 824, 828 (7th Cir. 1996) (internal quotation marks and citation omitted); see also Estate of Moreland v. Dieter, 576 F.3d 691, 699 (7th Cir. 2009). The ECOA states that “[i]t shall be unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction—on the basis of race, color, religion, national origin, sex or marital status, or age (provided the applicant has the capacity to contract) . . . .” 15 U.S.C. § 1691(a) (emphases added). The ECOA further defines “applicant” to mean “any person who applies to a creditor directly for an extension, renewal, or continuation of credit, or applies to a creditor Case: 1:20-cv-04176 Document #: 110 Filed: 02/03/23 Page 10 of 26 PageID #:663
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indirectly by use of an existing credit plan for an amount exceeding a previously established credit limit.” Id. § 1691a(b).
The plain text of the ECOA thus clearly and unambiguously prohibits discrimination against applicants, which the ECOA clearly and unambiguously defines as a person who applies to a creditor for credit. 15 U.S.C. §§ 1691(a), 1691a(b). The Court therefore finds that Congress has directly and unambiguously spoken on the issue at hand and only prohibits discrimination against applicants. As such, “that is the end of it,” Wolf, 962 F.3d at 221, and the Court need not move on to the second step of the Chevron analysis because it is clear that the ECOA does not apply to prospective applicants.5 The Court consequently affords no deference to 12 C.F.R. § 1002.4. See, e.g., Zimmerman v. Oregon Dep’t of Just., 170 F.3d 1169, 1173 (9th Cir. 1999) (affording no weight to 28 C.F.R. § 35.140(a), having found that “Congress unambiguously expressed its intent for Title II not to apply to employment”); Patterson v. Illinois, Dep’t of Corr., 35 F. Supp. 2d 1103, 1108 (C.D. Ill. 1999) (same). Case law supports the Court’s interpretation of the ECOA. The Seventh Circuit similarly found the ECOA’s definition of “applicant” to be unambiguous in Moran Foods, Inc. v. Mid-Atlantic Market Development Co., LLC, 476 F.3d 436, 441 (7th Cir. 2007), a case cited by Defendants. There, Susan Camp, a party who had guaranteed her husband’s debt, brought a counterclaim alleging that a grocery store had violated
5Because the Court finds that the ECOA unambiguously applies to “applicants” and not “prospective applicants,” the Court does not analyze whether the ECOA’s prohibition on “discrimination” encompasses “discouragement.” The Court likewise does not reach Defendants’ argument that the CFBP is attempting to create affirmative obligations with respect to marketing and the hiring of loan officers, nor its arguments under the First and Fifth Amendments. Memo. Dismiss at 8–9, 12–23.
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the ECOA by discriminating against her based on her marital status. Id. at 437. Camp obtained a jury verdict on her ECOA counterclaim. Id. On appeal, Camp asked to be awarded the attorney’s fees that she incurred in litigating her ECOA case and pursued additional relief under the ECOA. Id. at 437–38. In assessing Camp’s ECOA claim, the Seventh Circuit initially concluded that she was not an applicant at all: “Susan Camp was not an applicant for credit, and neither received credit nor was denied it. Instead, she guaranteed her husband’s debt and by doing so enabled his company to buy groceries from Moran on credit.” Moran, 476 F.3d at 441. The court recognized, however, that the Federal Reserve Board had “defined ‘applicant’ for credit (the term in the statute) to include a guarantor.” Id. (citing 12 C.F.R. §§ 202.2(e), 202.7(d)). While the Seventh Circuit acknowledged that “courts defer to administrative interpretations of statutes when a statute is ambiguous,” the court found that “there is nothing ambiguous about ‘ applicant’ and no way to confuse an applicant with a guarantor.” Id. (citations omitted). The court in Moran elaborated that “to interpret ‘applicant’ as embracing ‘guarantor’ opens vistas of liability that the Congress that enacted the Act would have been unlikely to accept.” Id.6 So too here, the Court doubts that the ECOA can be “stretched far
6Ultimately, the court in Moran found that even if the Federal Reserve Board’s interpretation were authorized, Camp’s ECOA claim “must lose because she failed to prove discrimination.” 476 F.3d at 441. The court therefore reversed the judgment of the district court. Id. at 442. As a result, the Seventh Circuit’s ECOA discussion in Moran is non-binding dicta. See FirstMerit Bank, N.A. v. Ferrari, 71 F. Supp. 3d 751, 758–59 (N.D. Ill. 2014). Even so, the analysis provides a straightforward interpretation of the ECOA, which the Court finds persuasive.
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enough” to interpret a prohibition of discrimination against applicants as prohibiting discrimination of prospective applicants. Id.
Defendants direct the Court to other Court of Appeals decisions as well, which hold that an “applicant” does not encompass a “guarantor” under the ECOA. Memo. Dismiss at 7 (citing Hawkins v. Cmty. Bank of Raymore, 761 F.3d 937, 942 (8th Cir. 2014); Regions Bank v. Legal Outsource PA, 936 F.3d 1184, 1193 (11th Cir. 2019)). Both decisions buttress this Court’s finding that no deference is owed to Regulation B’s anti-discouragement provision for prospective applicants. In Hawkins, for example, the plaintiffs, guarantors, brought an ECOA claim alleging that the defendant bank discriminated against them based on their marital status. 761 F.3d at 939. The district court granted summary judgment against the plaintiffs, holding that they did not constitute “applicants” under the ECOA. Id. at 940. On appeal, the plaintiffs insisted they could bring a claim under the ECOA because 12 C.F.R. § 202.2(e) of Regulation B provided that the definition of “applicant” included a guarantor. Id. Observing that the case turned on whether the court should defer to Regulation B Section 202.3(e)’s definition of “applicant,” which would allow the plaintiffs’ suit, the court applied the Chevron two-step framework. Id. At step one, the Eighth Circuit found that the “text of the ECOA clearly provides that a person does not qualify as an applicant under the statute solely by virtue of executing a guaranty to secure the debt of another.” Id. at 941. The court looked to the ECOA’s definition of “applicant,” reviewed the dictionary definition for “apply,” and concluded that “the plain language of the ECOA unmistakably provides that a Case: 1:20-cv-04176 Document #: 110 Filed: 02/03/23 Page 13 of 26 PageID #:666
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person is an applicant only if she requests credit.” Id. (citing 15 U.S.C. § 1691a(b); Webster’s Third New International Dictionary 105 (2002)). “Because the text of the ECOA is unambiguous regarding whether a guarantor constitutes an applicant,” the Eight Circuit stopped after Chevron step one and did not defer to the agency’s interpretation of applicant. Id. at 942.
In Regions Bank, defendants who had been sued for breach of promissory notes and breach of guaranties brought counterclaims alleging they were discriminated against on the basis of marital status in violation of the ECOA. 936 F.3d at 1187. After losing on summary judgment, the defendants appealed, relying on the definition of “applicant” in Regulation B to argue that they could bring their ECOA counterclaims. Id. at 1190. The Eleventh Circuit, like the Eighth, applied the twostep Chevron framework to determine whether it owed deference to Regulation B’s interpretation of “applicant.” Id. Because the court “agree[d] with the Seventh and Eighth Circuits that the ordinary meaning of ‘applicant’ does not encompass a guarantor,” the Eleventh Circuit concluded that no deference was due Section 202.2(e). Id. at 1193 (citing Moran, 476 F.3d at 441; Hawkins, 761 F.3d at 942). But see RL BB Acquisition, LLC v. Bridgemill Commons Dev. Grp., LLC, 754 F.3d 380, 385 (6th Cir. 2014) (proceeding to Chevron step two and deferring to section 202.2(e) on theory that the term “applies” is ambiguous and that guarantors qualify as requesting credit because they “make formal requests for aid in the form of credit for a third party”).
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The CFPB attempts to distinguish Defendants’ authority by arguing that the cases are inapposite because they analyze whether a “guarantor” is within the definition of “applicant” for purposes of bringing a private action under the ECOA. Resp. at 8–9. The CFPB posits that neither the definition of “applicant,” nor the question of whether a private right of action exists, is at issue in this case. Id. at 9. True, the cases cited by Defendants involved the question of whether individual guarantors could maintain an action under the ECOA. But the analysis employed by the courts to resolve the issue in those cases provides a sound framework to resolve the issue in this case.
The CFPB argues that it has more expansive enforcement powers than the private right of action, and moreover, its authority to prohibit discouragement of “prospective applicants” does not require stretching the term “applicant” to encompass “prospective applicants.” Id. The Court disagrees. The CFPB’s authority to enact regulations is not limitless. Under Section 1691b, the CFPB “shall prescribe regulations to carry out the purposes of [the ECOA].” 15 U.S.C. § 1691b(a). While the delegating section is, no doubt, broad,7 the ECOA explicitly defines its “Scope of prohibition” as: “[i]t shall be unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction—on the basis of race[.]” Id. § 1691(a) (emphasis added). Indeed, the entire statutory scheme revolves around applicants. As Defendants point out, the word
7The CFPB, relying on the Mourning test, argues that the broad language in Section 1691b means that it can enact any regulations “reasonably related” to the purposes of the ECOA. Resp. at 6–7. As discussed further below, the CFPB cannot use the Mourning test to avoid the two-step Chevron framework. See infra Section I.B. Case: 1:20-cv-04176 Document #: 110 Filed: 02/03/23 Page 15 of 26 PageID #:668
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“applicant” is used twenty-six times in the statute, and the statute does not prohibit or discuss conduct prior to the filing of an application. See Memo. Dismiss at 4. So, contrary to the CFPB’s position, the statute’s expression of “applicant,” is essential to understanding whether the CFPB can regulate with respect to “prospective applicants.” The CFPB cannot regulate outside the bounds of the ECOA, and the ECOA clearly marks its boundary with the term “applicant.” The Court’s reading of the ECOA, moreover, is not limited to the civil liability section of the ECOA, which provides that “[a]ny creditor who fails to comply with any requirement imposed under this subchapter shall be liable to the aggrieved applicant for any actual damages sustained by such applicant acting either in an individual capacity or as a member of a class.” 15 U.S.C. § 1691e(a).8 That is, the Court is not looking exclusively at the private right of action section of the ECOA to conclude that the whole act applies only to those who qualify as proper plaintiffs under that section. While this case may not present the specific issue of whether a private right of action exists for a private prospective applicant under Section 1691e, Count I, nevertheless,
8By contrast, the holding in one of the cases relied on by the CFPB, Alexander v. AmeriPro Funding, Inc., 848 F.3d 698 (5th Cir. 2017), was limited to the court’s interpretation of the civil liability section, Section 1691e. There, the court found, without applying the Chevron framework, that “[d]iscouragement of a ‘prospective applicant’ may be regulatorily prohibited, but it cannot form the basis of a private claim or cause of action under the ECOA.” Id. at 708. The Court finds Alexander of limited utility because the court did not address whether the court should defer to Regulation B under the two-step Chevron framework. Similarly, in Dhade, 414 F. Supp. 3d at 707, another case relied on by the CFPB limited to a claim brought under the civil liability section, the court found that Regulation B did not expand the definition of “applicant” to include “prospective applicant” in Section 1691e. Although the court noted that “the ECOA vested the CFPB with enforcement powers that are more expansive than the private right of action,” it also applied Chevron step one to find that “[t]here is nothing ambiguous about ‘applicant,’” meaning the court should not defer to an agency’s interpretation of the statute. Id. at 706–07. Case: 1:20-cv-04176 Document #: 110 Filed: 02/03/23 Page 16 of 26 PageID #:669
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cannot stand if it is based on a portion of Regulation B to which the Court owes no deference. Put another way, the ECOA says nothing about “prospective applicants,” so if the Court does not defer to Regulation B, Count I fails to state a claim, regardless of Section 1691e. C.f. Dhade, 414 F. Supp. 3d at 707. To further rebut Defendants’ authority, the CFPB cites to cases which purportedly acknowledge and treat Regulation B’s discouragement of prospective applicants as presumptively valid. Resp. at 9–10 (citing Treadway, 362 F.3d at 979– 80; Harbaugh v. Cont’l Ill. Nat’l Bank & Tr. Co. of Chi., 615 F.2d 1169, 1174 (7th Cir. 1980)). Yet, a court’s acknowledgment of—or even reliance on—a regulation, when the validity of that regulation is not dispute, does not help the Court resolve the Chevron deference question at play here. The CFPB points to Page, 2013 WL 5211747, at *5, in which the court rejected Defendant’s argument that the individual plaintiff’s claim under the civil liability provision failed because she never submitted an application. The court looked to Regulation B’s language and found that “the ECOA applies to all stages of a credit transaction.” Id. However, the court did not engage in the two-step Chevron analysis to determine whether the court should defer to Regulation B. Id. After applying the Chevron analysis, the Court respectfully disagrees with the court’s deference to Regulation B in Page. The CFPB cites to no authority in which a court engaged in a Chevron analysis and after doing so, deferred to the anti-discouragement provision in Regulation B. For the reasons stated above, the Court finds that, when applying step one of Chevron, it cannot defer to Regulation Case: 1:20-cv-04176 Document #: 110 Filed: 02/03/23 Page 17 of 26 PageID #:670
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B’s anti-discouragement provision of with respect to “prospective applicants,” no matter how desirable it might be to do so as a policy matter. B. The CFPB’s Reliance on the Mourning Standard Rather than engage in any Chevron analysis, the CFPB attempts to skirt the Chevron framework by emphasizing the broad language of the delegation provision of the ECOA, Section 1691b. Resp. at 6 (citing 15 U.S.C. § 1691b(a)). According to the CFPB, “Congress understood that additional rules may be necessary to prevent evasion of [the] ECOA’s prohibitions and expressly instructed the Board, then the [CFPB], to enact any such rules.” Id. The CFBP essentially suggests that Congress gave the CFPB rulemaking carte blanche in Section 1691b. In support, the CFPB directs the Court to a similar “anti-evasion provision” in the Truth in Lending Act (TILA), 15 U.S.C. § 1604(a)), as well as a pre-Chevron case interpreting the TILA, Mourning v. Fam. Publ’ns Serv., Inc., 411 U.S. 356 (1973). Id. at 6–7. In Mourning, the Supreme Court addressed whether the Federal Reserve Board had exceeded its authority under the TILA in promulgating a portion of its Regulation Z, commonly referred to as the “Four Installment Rule.” 411 U.S. at 358. Section 121 of the TILA required merchants who regularly extend credit with attendant finance charges to disclose certain contract information. 15 U.S.C. § 1631. The Federal Reserve Board promulgated Regulation Z, which required disclosure under Section 121 of the TILA whenever credit is offered to a consumer “for which either a finance charge is or may be imposed or which pursuant to an agreement, is or may be payable in more than four installments.” 411 U.S. at 362 (citing 12 CFR Case: 1:20-cv-04176 Document #: 110 Filed: 02/03/23 Page 18 of 26 PageID #:671
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§ 226.2(k)). To determine whether the Federal Reserve Board had exceeded its rulemaking authority, the Supreme Court looked to the delegation provision of the TILA, Section 105, which provided that the Federal Reserve Board “shall prescribe regulations to carry out the purposes of (the Act). These regulations may contain such classifications, differentiations, or other provisions, and may provide for such adjustments and exceptions for any class of transactions, as in the judgment of the Board are necessary or proper to effectuate the purposes of (the Act), to prevent circumvention or evasion thereof, or to facilitate compliance therewith.” 15 U.S.C. § 1604.
From this language, the Supreme Court found that Congress gave the Federal Reserve Board “broad authority to promulgate regulations necessary to render the Act effective.” 411 U.S. at 365. Specifically, the Court in Mourning highlighted both the general grant of authority to promulgate regulations designed to carry out the purposes of the act, as well as the language in Section 105 allowing regulations that may define classifications and exceptions to ensure compliance with the TILA. Id. Under the applicable precedent at the time, where an empowering provision of a statute, like Section 105, gave the agency the power to make such rules and regulations as may be necessary to carry out the act, the validity of a regulation promulgated under such an empowering provision would be sustained, so long as it was “reasonably related to the purposes of the enabling legislation.” 411 U.S. at 369 (internal quotation marks and citations omitted). The Supreme Court therefore upheld the “Four Installment Rule” because the rule was reasonably related to the Case: 1:20-cv-04176 Document #: 110 Filed: 02/03/23 Page 19 of 26 PageID #:672
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TILA’s objectives of preventing the evasion of its reporting requirements by concealing credit charges. Id. at 371.
The CFPB submits that, per the Mourning decision, the anti-discouragement provision of Regulation B must be sustained, so long as it is reasonably related to the ECOA’s objectives. Resp. at 7. The Seventh Circuit, contends the CFPB, “has likewise held that rules necessary to render TILA effective must be sustained so long as they are reasonably related to the legislation’s purposes.” Id. (citing Muro v. Target Corp., 580 F.3d 485, 494 n.9 (7th Cir. 2009)). However, neither Mourning nor Muro permits this Court to dodge the two-step Chevron framework. First and foremost, the Supreme Court mandates that a court faced with a disputed agency interpretation must apply Chevron. In City of Arlington, Tex. v. F.C.C., for example, the Supreme Court rejected using a non-Chevron standard when an agency interprets the scope of its own statutory authority. 569 U.S. 290, 296–97 (2013). The Supreme Court held that the Chevron framework applied, reasoning that “[n]o matter how it is framed, the question a court faces when confronted with an agency’s interpretation of a statute it administers is always, simply, whether the agency has stayed within the bounds of its statutory authority.” Id. at 297 (emphasis in original). And in an earlier, post-Mourning case analyzing the TILA, the Supreme Court approached a regulation, not by asking whether the Federal Reserve Board’s interpretation was reasonably related to TILA’s objectives (the Mourning test), but by asking whether the statute had spoken on the issue (Chevron step one): “In determining whether the Board was empowered to make such a change, we begin, of Case: 1:20-cv-04176 Document #: 110 Filed: 02/03/23 Page 20 of 26 PageID #:673
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course, with the language of the statute. If the statute is clear and unambiguous ‘that is the end of the matter, for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.’” Bd. of Governors of Fed. Rsrv. Sys. v. Dimension Fin. Corp., 474 U.S. 361, 368 (1986) (citing Chevron, 467 U.S. at 842–43); see also Ragsdale v. Wolverine World Wide, Inc., 535 U.S. 81, 92 (2002) (explaining that Mourning does not authorize agencies to “contravene Congress’ will”). Seventh Circuit decisions, too, plainly require the Court to apply the Chevron framework when faced with a disputed agency interpretation that merits Chevron deference.9 See, e.g., Zaragoza v. Garland, 52 F.4th 1006, 1019 (7th Cir. 2022) (applying two-step Chevron framework to decision of Attorney General interpreting federal immigration statutes); Wolf, 962 F.3d at 221 (“The overriding question is whether the agency’s interpretation of the relevant statute is one the text will permit. We approach this inquiry through the two-step framework set forth in Chevron[.]”); Khan v. United States, 548 F.3d 549, 554 (7th Cir. 2008), as amended (Dec. 4, 2008) (reviewing general authority regulations under the two-step Chevron framework). Because the Chevron framework reigns supreme, numerous courts have rejected similar agency attempts to eschew Chevron in favor of Mourning. For instance, Defendants point to First Premier Bank v. U.S. Consumer Fin. Prot. Bureau,
9An agency interpretation qualifies for Chevron step one when “it appears that Congress delegated authority to the agency generally to make rules carrying the force of law, and that the agency interpretation claiming deference was promulgated in the exercise of that authority.” United States v. Mead Corp., 533 U.S. 218, 226–27 (2001); see also Brumfield v. City of Chicago, 735 F.3d 619, 625–26 (7th Cir. 2013). This threshold question, sometimes referred to as “Chevron step zero,” see, e.g., Pugin v. Garland, 19 F.4th 437, 441 (4th Cir. 2021), is not disputed in this case.
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819 F. Supp. 2d 906, 909 (D.S.D. 2011). R. 38, Reply at 2–3. In First Premier Bank, a bank sued the CFPB, seeking a preliminary injunction to postpone and enjoin the effective date of an amendment to a credit card fee regulation. 819 F. Supp. 2d at 909. The bank attacked the regulation amendment under the Administrative Procedure Act. Id. at 911–12. In analyzing the disputed regulation amendment, the court applied the two-step Chevron framework. Id. at 914. The CFPB argued that the Chevron framework did not apply, citing Mourning and two other pre-Chevron cases. Id. at 917 (citing Anderson Bros. Ford v. Valencia, 452 U.S. 205 (1981); Ford Motor Credit Co. v. Milhollin, 444 U.S. 555 (1980); Mourning, 411 U.S. 356). The court rejected the CFPB’s contention, stating “the language of Mourning and its progeny make sense standing alone only in a pre-Chevron setting” in which “‘pre-Chevron courts frequently looked to the relative competence of the agency and the court in deciding the matter in question.’” Id. at 917–18 (quoting Oil, Chem. & Atomic Workers Int'l Union, AFL-CIO v. N.L.R.B., 46 F.3d 82, 90 (D.C. Cir. 1995)). Similarly in Colorado River Indian Tribes v. Nat’l Indian Gaming Comm’n, the National Indian Gaming Commission argued that its minimum internal control standards for a casino should be sustained under Mourning, as the rules were “reasonably related to the statutory purposes of the [Indian Gaming Regulatory Act].” 383 F. Supp. 2d 123, 143 (D.D.C. 2005), aff’d, 466 F.3d 134 (D.C. Cir. 2006). The court disagreed, explaining that “courts and agencies ‘are bound, not only by the ultimate purposes Congress has selected but by the means it has deemed appropriate, and prescribed, for the pursuit of those purposes.’” Id. (quoting MCI Telecommunications Case: 1:20-cv-04176 Document #: 110 Filed: 02/03/23 Page 22 of 26 PageID #:675
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Corp. v. Am. Tel. & Tel. Co., 512 U.S. 218, 231 n.4 (1994)). The court concluded that “although Mourning stated that a broad grant of rule-making authority allows an agency to issue regulations that are ‘reasonably related to the purposes of the enabling legislation,’ courts have consistently read this language to describe a heightened level of deference that is due the agency’s interpretation of an ambiguous statute under Chevron step two, rather than a warrant to override a clear statute under Chevron step one.” Id. at 144 & n.15 (emphasis added) (collecting cases). The Court joins First Premier Bank and Colorado River Indian Tribes in declining the agency’s invitation to bypass Chevron by way of Mourning. The Court further sides with the numerous courts who have held that Mourning’s application belongs, if anywhere, in Chevron step two. See, e.g., Merck & Co. v. United States Dep't of Health & Hum. Servs., 385 F. Supp. 3d 81, 88–89 (D.D.C. 2019), aff’d, 962 F.3d 531 (D.C. Cir. 2020) (rejecting agency’s attempt to circumvent Chevron in light of Mourning and collecting cases situating Mourning with Chevron’s second step); Chamber of Com. of U.S. v. N.L.R.B., 721 F.3d 152, 161 (4th Cir. 2013) (holding Mourning analysis only relevant once the court has determined that a statute is ambiguous, concluding “Mourning’s exhortation that we ‘defer to the informed experience and judgment of the agency to whom Congress delegated appropriate authority,’ . . . cannot be read as requiring [the court] to defer to the agency’s interpretation as [the court] conduct[s its] initial analysis of the Act.”); Brackeen v. Haaland, 994 F.3d 249, 360 (5th Cir. 2021) (applying Mourning test in second step of Case: 1:20-cv-04176 Document #: 110 Filed: 02/03/23 Page 23 of 26 PageID #:676
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Chevron). Here, because the ECOA is unambiguous, the Court does not reach Chevron step two,10 and Mourning is inapplicable.
The Seventh Circuit’s Muro decision does not revive Mourning’s significance either. In Muro, the Seventh Circuit reviewed a district court’s denial of class certification in an attempted TILA class action. 580 F.3d at 487. When interpreting Section 1637(a) of TILA, the court found that TILA was silent on “when an account is ‘open.’” Id. at 493. Having found a gap in the statute, the court looked to Regulation Z’s specification that initial disclosures must be made before the first transaction is made under the plan. Id. (citing 12 C.F.R. § 226.5(b)(1)). Dropping a footnote, the Seventh Circuit cited Mourning generally for the proposition that “[t]he provisions of Regulation Z are afforded substantial weight.” Id. at 493 n.9. So, although the court in Muro cited Mourning, Regulation Z was not under review, and even if it were, the court only looked to Mourning after the court had determined that Congress had been silent on the issue the court was concerned with. Muro in no way stands for the proposition that a court can avoid the Chevron framework in light of Mourning. In sum, the Chevron framework requires the Court to begin its analysis with the plain language of the ECOA. Because the Court finds the ECOA unambiguously prohibits discrimination of “applicants,” and not “prospective applicants,” the Court does not assess Regulation B for the soundness of its policy, the need for it in the
10Because the Court does not reach Chevron step two, the CFPB’s arguments about legislative history and the ineffectiveness of the ECOA without Regulation B’s anti-discouragement provision, see Resp. at 4–5, 7–8, are inapposite. Coyomani-Cielo v. Holder, 758 F.3d 908, 914 (7th Cir. 2014) (holding legislative history is reserved for Chevron’s second step, in which court deferentially determines whether the agency’s interpretation is reasonable). Case: 1:20-cv-04176 Document #: 110 Filed: 02/03/23 Page 24 of 26 PageID #:677
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statute, or even whether it is reasonably related to the ECOA’s objectives. To be clear, the Court appreciates the expertise of the CFPB in implementing the ECOA and commends its attempts to prevent the deplorable practice of discouraging people, on the basis of race, from applying for credit. The practice of limiting credit to individuals based on criteria other than creditworthiness is as odious as it is offensive. However, the Court is duty-bound to follow precedent, which means the Court can only defer to an agency’s interpretation of a statute, no matter how laudable its purpose, when it survives the two-step Chevron framework. The anti-discouragement provision of Regulation B with respect to “prospective applicants” does not survive Chevron step one, so the Court does not defer to the CFPB’s interpretation. Accordingly, the CFPB’s ECOA count is dismissed. The dismissal is with prejudice because any amendment would be futile. See Heng v. Heavner, Beyers & Mihlar, LLC, 849 F.3d 348, 354 (7th Cir. 2017). The CFPB cannot amend its pleading in a way that would change the language of the ECOA. Counts II and III, which are dependent on the CFPB’s ECOA claim, see FAC ¶¶ 59–78, are likewise dismissed with prejudice.
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Conclusion
For the foregoing reasons, the Court grants Defendants’ motion to dismiss the FAC [31] and dismisses the FAC with prejudice. Civil case terminated.
Dated: February 3, 2023
____________________________________ United States District Judge Franklin U. Valderrama
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Opinion ()
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In the United States Court of Appeals For the Seventh Circuit ____________________ No. 23-1654 CONSUMER FINANCIAL PROTECTION BUREAU, Plaintiff-Appellant, v.
TOWNSTONE FINANCIAL, INC. and BARRY STURNER, Defendants-Appellees.
____________________ Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 1:20-cv-04176 — Franklin U. Valderrama, Judge. ____________________ ARGUED DECEMBER 8, 2023 — DECIDED JULY 11, 2024 ____________________ Before SYKES, Chief Judge, and RIPPLE and ROVNER, Circuit Judges.
RIPPLE, Circuit Judge. Congress originally enacted the Equal Credit Opportunity Act (the “ECOA”), 15 U.S.C. § 1691 et seq., in order to ensure that firms engaged in the extension of credit make that credit equally available without regard to an applicant’s sex or marital status. The ECOA was soon amended to prohibit creditors from discriminating on the basis of additional categories: race, color, religion, national Case: 23-1654 Document: 78 Filed: 07/11/2024 Pages: 15
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No. 23-1654 origin, and age. Congress delegated authority to the Federal Reserve Board (the “Board”) to enact regulations to carry out the ECOA’s purpose. Pursuant to that authority, the Board enacted “Regulation B,” which exists in substantially the same form today and prohibits creditors from discouraging, on a prohibited basis, applicants or prospective applicants from making or pursuing an application for credit. Congress later transferred the Board’s authority to the Consumer Financial Protection Bureau (the “CFPB” or “Bureau”). In July 2020, the CFPB brought this action against mortgage lender Townstone Financial, Inc. (“Townstone”) and its cofounder and chief executive officer, Barry Sturner. The CFPB alleged that Townstone and Mr. Sturner had discouraged black prospective applicants from applying for mortgage loans with Townstone, in violation of Regulation B, by making, over a period of years, several statements on their long-form commercial advertisement radio show. Townstone and Mr. Sturner filed a motion to dismiss, and the district court granted the motion. The district court held that the ECOA does not authorize the imposition of liability for the discouragement of prospective applicants. For the reasons set forth in the following opinion, we take a different view. When the text of the ECOA is read as a whole, it is clear that Congress authorized the imposition of liability for the discouragement of prospective applicants. Regulation B’s prohibition on discouraging prospective applicants is therefore consistent with the ECOA’s text and purpose. We accordingly reverse the decision of the district court and remand for proceedings consistent with this opinion.
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No. 23-1654 I BACKGROUND A.
This case comes to us from the district court’s grant of Townstone’s motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure. We therefore take as true the allegations of the amended complaint and base the following factual recitation on those allegations. Townstone is a non-depository mortgage lender or mortgage broker engaged exclusively in mortgage lending. Mr. Sturner is the cofounder, sole owner, and sole director of Townstone. He also serves as Townstone’s president and chief executive officer. Incorporated in Illinois and headquartered in Chicago, Townstone operates in four other states: Indiana, Michigan, Wisconsin, and Florida. Most of its mortgage lending and brokering activity occurs in the Chicago-Naperville-Elgin Metropolitan Statistical area (the “Chicago MSA”).1 The population of the Chicago MSA is approximately 9.46 million persons. About 1.6 million (17%) of those persons are black.
Beginning in 2014 or earlier, Townstone started broadcasting its own radio show and podcast, called “The Townstone Financial Show.” The show is co-hosted by Mr. Sturner and another senior loan officer in a format often referred to as a “long-form commercial advertisement.”2
1 The Chicago MSA comprises fourteen counties, including counties from Illinois (nine counties), Indiana (four counties), and Wisconsin (one county).
2 First Am. Compl. ¶ 26.
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No. 23-1654 During the Townstone Financial Show, the hosts discuss mortgage-related issues, take questions from prospective applicants, and discuss their work at Townstone. When the hosts take a commercial break, the radio show plays shorter advertisements for Townstone. The Townstone Financial Show was originally broadcast on AM radio to the Chicago MSA. It has also been available in podcast form on Townstone’s website, streamed on Facebook Live, and advertised on various social media platforms. According to the CFPB’s complaint, the hosts of the Townstone Financial Show regularly have made statements that would discourage black prospective applicants from applying for mortgage loans. The complaint identifies five such instances.
First, in January 2014, a caller from Markham, Illinois, a municipality in Cook County with a population that is predominantly black, asked the hosts how he and his wife could improve their credit scores. In response, one of the hosts responded: “[You’ve] got to keep those women in line over there in Markham. … [S]top spending freaking money [on your wife] and tell her to get a better job.”3 The host then discussed Markham generally and made statements such as “it’s crazy in Markham on weekends” and “[y]ou drive very fast through Markham, … and you don’t look at anybody or lock on anybody’s eyes in Markham.”4 Second, again in January 2014, the hosts informed listeners that it was a “great time” to buy, sell, and rent, and
3 Id. ¶ 33.
4 Id.
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No. 23-1654 recommended that those doing so should “take down the Confederate flag.”5 Third, in June 2016, Mr. Sturner stated that the South Side of Chicago is “hoodlum weekend” between Friday and Monday, and that the police are “the only ones between that [area] turning into a real war zone and keeping it where it’s kind of at.”6 Fourth, in January 2017, Mr. Sturner described a Jewel- Osco grocery store in downtown Chicago as “Jungle Jewel.”7 He described the store as “a scary place” because the store’s patrons “were people from all over the world.”8 Fifth and finally, in November 2017, when discussing one host’s recent skydiving experience, another host stated that a person “walking through the South Side at 3AM [would] get the same rush” as they would skydiving.9 In addition to these five instances, the CFPB’s complaint also provides statistical information supporting its view that Townstone’s business acts and practices led to less black prospective applicants applying for credit from Townstone than would have been the case in the absence of these discriminatory practices. The CFPB alleges that, during the years 2014 through 2017, when compared to its peer institutions operating in the Chicago MSA, Townstone
5 Id. ¶ 34.
6 Id. ¶ 35.
7 Id. ¶ 36.
8 Id.
9 Id. ¶ 37.
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No. 23-1654 received fewer mortgage applications from black applicants, fewer mortgage applications for properties in neighborhoods with a high-black population (defined as neighborhoods in which 80% or more of residents are black), and fewer mortgage applications for properties in neighborhoods with a majority of black residents.
B.
In July 2020, the CFPB brought the present action against Townstone in the United States District Court for the Northern District of Illinois.10 The CFPB later amended its complaint and added Mr. Sturner as a defendant. Based on the allegations just described, the CFPB’s amended complaint presents three claims: one count of violating the ECOA, see 15 U.S.C. § 1691(a)(1), and one of its regulations, Regulation B, see 12 C.F.R. § 1002.4(b); one count of violating the Consumer Financial Protection Act of 2010, see 12 U.S.C. § 5536(a)(1)(A); and one count of fraudulent transfer, in violation of 28 U.S.C. §§ 3301–3308. Townstone and Mr. Sturner filed a motion to dismiss. The district court granted the motion to dismiss. The court focused on the ECOA’s definition of applicant as “any person who applies to a creditor directly for an extension, renewal, or continuation of credit, or applies to a creditor indirectly by use of an existing credit plan for an amount exceeding a previously established credit limit.” 15 U.S.C. § 1691a(b). Based on this definition, the district court concluded that “it is clear that the ECOA does not apply to prospective
10 The CFPB has authority to enforce the ECOA and its corresponding regulations by commencing a civil action. See 15 U.S.C. § 1691c(a)(9); 12 U.S.C. § 5564.
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No. 23-1654 applicants.” CFPB v. Townstone Fin., Inc., No. 20-cv-4176, 2023 WL 1766484, at *5 (N.D. Ill. Feb. 3, 2023). To support its conclusion, the court also relied on a line of cases from this circuit and others holding that a “guarantor” was not an “applicant” under the ECOA. It then rejected the CFPB’s argument that its enforcement and rulemaking authority allowed it to prohibit discouragement of prospective applicants. It reasoned that the “[t]he CFPB cannot regulate outside the bounds of the ECOA, and the ECOA clearly marks its boundary with the term ‘applicant.’” Id. at *7.
Because the district court determined that the ECOA could not apply to prospective applicants, it dismissed Count I. It then dismissed Counts II and III, explaining that those counts were dependent on the success of Count I. The CFPB appealed.
II DISCUSSION A.
We begin our analysis with an examination of the textual history of the statute and the regulation. Congress enacted the ECOA in 1974. In the initial version of the statute, Congress stated that the legislation’s purpose was to ensure “that financial institutions and other firms engaged in the extension of credit make that credit equally available to all creditworthy customers without regard to sex or marital status.” Equal Credit Opportunity Act of 1974, Pub. L. No. 93-495, § 502, 88 Stat. 1500, 1521 (1974). In 1976, Congress amended the ECOA to prohibit discrimination on the basis of additional Case: 23-1654 Document: 78 Filed: 07/11/2024 Pages: 15
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No. 23-1654 categories: race, color, religion, national origin, and age. Equal Credit Opportunity Act Amendments of 1976, Pub. L. No. 94-239, § 701, 90 Stat. 251, 251 (1976). Since then, the ECOA’s scope of prohibition has provided that: It shall be unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction— (1) on the basis of race, color, religion, national origin, sex or marital status, or age (provided the applicant has the capacity to contract).
15 U.S.C. § 1691(a). The ECOA defines “applicant” as “any person who applies to a creditor directly for an extension, renewal, or continuation of credit, or applies to a creditor indirectly by use of an existing credit plan for an amount exceeding a previously established credit limit.” Id. § 1691a(b).
The text of the ECOA vested the Board with broad regulatory authority:
The Board shall prescribe regulations to carry out the purposes of this title. These regulations may contain but are not limited to such classifications, differentiation, or other provision, and may provide for such adjustments and exceptions for any class of transactions, as in the judgment of the Board are necessary or proper to effectuate the purposes of this title, to prevent circumvention or evasion thereof, or to facilitate or substantiate compliance therewith. Such regulations shall be Case: 23-1654 Document: 78 Filed: 07/11/2024 Pages: 15
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No. 23-1654 prescribed as soon as possible after the date of enactment of this Act, but in no event later than the effective date of this Act.
Pub. L. No. 93-495, § 703, 88 Stat. at 1522. This broad grant of authority was modeled after similar language found in the Truth In Lending Act (“TILA”). See 15 U.S.C. § 1604(a). An earlier proposed version of the ECOA had granted the Board notably diminished authority,11 but as the statute progressed through congressional deliberation, the Board suggested that Congress grant it “the same regulatory authority accorded it in … the Truth in Lending Act.” Credit Discrimination: Hearing on H.R. 14856 and H.R. 14908 Before the Subcomm. on Consumer Affs. of the Comm. of Banking & Currency, 93d Cong. 72 (1974) (appendix to statement by Jeffrey M. Bucher, Member, Bd. of Governors of the Fed. Rsrv. Sys.). The Board explained that TILA’s “grant of authority ha[d] successfully withstood several litigation challenges since 1969 and thus appear[ed] to be an appropriate model.” Id. Congress accepted this view, and the ECOA’s grant of authority to the Board was thus modeled after the language found in TILA.
In 1991, Congress modified the ECOA to require its enforcing regulatory agencies to refer suspected substantive pattern and practice cases under the ECOA to the Attorney General. FDIC Improvement Act of 1991, Pub. L. No. 102-242, § 223, 105 Stat. 2236, 2306 (1991); see also S. Rep. No. 102-167,
11 The earlier suggested language stated: “The Board shall prescribe such regulations which in its judgment are necessary or proper to carry out this Act.” H.R. 14856, 93d Cong. § 5(a) (2d Sess. 1974). Case: 23-1654 Document: 78 Filed: 07/11/2024 Pages: 15
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No. 23-1654 at 93 (1991).12 The relevant portion of the ECOA remains the same today and states:
Each agency referred to in paragraphs (1), (2), and (9) of section 1691c(a) of this title shall refer the matter to the Attorney General whenever the agency has reason to believe that 1 or more creditors has engaged in a pattern or practice of discouraging or denying applications for credit in violation of section 1691(a) of this title. Each such agency may refer the matter to the Attorney General whenever the agency has reason to believe that 1 or more creditors has violated section 1691(a) of this title. 15 U.S.C. § 1691e(g) (emphasis added). At the time, members of Congress were concerned that the regulatory agencies responsible for enforcing the provisions of the ECOA were not taking appropriate action to resolve issues of credit discrimination.13
12 Previously, the ECOA authorized but did not require the enforcing agencies to refer matters to the Attorney General. The 1976 amendments to the ECOA provided that, “if unable to obtain compliance” with the statute, the enforcing agencies were “authorized to refer the matter to the Attorney General with a recommendation that an appropriate civil action be instituted.” Pub. L. No. 94-239, § 706(g), 90 Stat. at 254. 13 See S. Rep. No. 102-167, at 92–93 (1991) (“The Committee also found problems with fair lending enforcement, even after evidence of discrimination was identified. The regulatory agencies showed great reluctance to take strong action against any depository institution found to be discriminating. … [T]he Justice Department would likely take a more appropriate approach to remedying discrimination. … The legislation, therefore, ( … continued) Case: 23-1654 Document: 78 Filed: 07/11/2024 Pages: 15
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No. 23-1654 The first version of Regulation B tracked the ECOA and prohibited creditors from discouraging applications on the basis of sex or marital status. 40 Fed. Reg. 49,298, 49,307 (Oct. 22, 1975). The exact language stated: “A creditor shall not make any statements to applicants or prospective applicants which would, on the basis of sex or marital status, discourage a reasonable person from applying for credit or pursuing an application for credit.” Id. When the ECOA was amended to expand its categories of prohibition, the Board amended Regulation B to prohibit discouragement on a “prohibited basis,” which the regulations defined as “race, color, religion, national origin, sex, marital status, or age.” 42 Fed. Reg. 1242, 1253–54 (Jan. 6, 1977). Later, in 2010, Congress transferred rulemaking authority from the Board to the Bureau. Dodd-Frank Wall Street Reform & Consumer Protection Act, Pub. L. No. 111-203, § 1085, 124 Stat. 1376, 2083–84 (2010). The Bureau then republished Regulation B, 81 Fed. Reg. 25,323, 25,325 (Apr. 28, 2016), which states in full: Discouragement. A creditor shall not make any oral or written statement, in advertising or otherwise, to applicants or prospective applicants that would discourage on a
requires the financial regulatory agencies to refer suspected substantive pattern and practice cases of discrimination under the [ECOA] to the Justice Department.”); 137 Cong. Rec. S2519 (daily ed. Feb. 28, 1991) (statement of Sen. Dixon) (“The subcommittee heard troubling statistics which showed that blacks and minority neighborhoods got fewer loans and got rejected for loans more often than whites and white neighborhoods—even when incomes were comparable. We also heard about the inadequate regulatory response to this situation.”). Case: 23-1654 Document: 78 Filed: 07/11/2024 Pages: 15
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No. 23-1654 prohibited basis a reasonable person from making or pursuing an application.
12 C.F.R. § 202.4(b).14 B.
We now turn to an examination of the problem before us. This case requires us to determine whether Regulation B’s prohibition on the discouragement of prospective applicants is consistent with the ECOA. We review questions of statutory interpretation de novo. Coyomani-Cielo v. Holder, 758 F.3d 908, 912 (7th Cir. 2014).15 We begin with the text of the statute. We read a statute “‘as a whole’ rather than ‘as a series of unrelated and isolated provisions.’” United States v. Pace, 48 F.4th 741, 753 (7th Cir. 2022) (quoting Arreola-Castillo v. United States, 889 F.3d 378, 386 (7th Cir. 2018)). “The plainness or ambiguity of statutory language is determined by reference to the language itself, the specific context in which that language is used, and the broader context of the statute as a whole.” Robinson v. Shell Oil
14 At the time of the 1991 amendment to the ECOA, Congress was aware of Regulation B and its prohibition on discouragement. See S. Rep. No. 102-167, at 86 (1991) (noting that “[d]iscouraging applications on a prohibited basis and advertising which implies a discriminatory preference are … prohibited” under the ECOA regulations). 15 This case was litigated before the Supreme Court’s decision in Loper Bright Enterprises v. Raimondo, No. 22-451, 603 U.S. ___ (2024). Our decision today takes into account that Loper Bright overruled Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). We approach this case as presenting a question of statutory interpretation subject to our de novo review.
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No. 23-1654 Co., 519 U.S. 337, 341 (1997). We therefore cannot constrain artificially the ECOA to a single provision.16 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. Congress vested the Board (and later the Bureau) with the authority to issue regulations “necessary or proper to effectuate the purposes of this title” or “to prevent circumvention or evasion thereof.” 15 U.S.C. § 1691b(a). In endowing the Board with authority to prevent “circumvention or evasion,” Congress indicated that the ECOA must be construed broadly to effectuate its purpose of ending discrimination in credit applications. Moreover, other provisions of the ECOA strongly confirm that discouraging applications for credit constitutes a violation of the statute. When Congress amended its civil liability provision so that the regulatory agencies responsible for enforcing the ECOA would be required to refer a case to the Attorney General whenever the agency believed a creditor “has engaged in a pattern or practice of discouraging … applications for credit in violation of section 1691(a) of this title,” 15 U.S.C. § 1691e(g), Congress thus confirmed that discouraging an application for credit is a violation of the ECOA. Reading the statutory language as a whole, including the strong congressional direction that the cognizant agencies and the Department of Justice prevent “circumvention and evasion,”
makes clear that the prohibition against
16 See FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 132 (2000) (“[A] reviewing court should not confine itself to examining a particular statutory provision in isolation.”).
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No. 23-1654 discouragement must include the discouragement of prospective applicants. The term “applicant” cannot be read in a crabbed fashion that frustrates the obvious statutorily articulated purpose of the statute. Indeed, the ECOA’s scope of prohibition prohibits discrimination “with respect to any aspect of a credit transaction.” 15 U.S.C. § 1691(a) (emphasis added). Congress well understood that “any aspect of a credit transaction” had to include actions taken by a creditor before an applicant ultimately submits his or her credit application.17 C.
Townstone submits that Regulation B violates the First Amendment. As Townstone sees it, Regulation B is invalid facially and as applied to Townstone’s speech on the Townstone Financial Show. Although the issue was briefed by both parties in the proceedings in the district court, the district court declined to reach the argument, deeming it unnecessary to do so in light of its conclusion that the ECOA could not apply to prospective applicants. “It is the general rule, of course, that a federal appellate court does not consider an issue not passed upon below.”
17 Our conclusion that Regulation B is authorized by and consistent with the ECOA’s plain text is not altered by previous opinions, from this circuit and others, holding that the ECOA’s definition of “applicant” cannot include “guarantor.” In Moran Foods v. Mid-Atlantic Market Development, Co., LLC, 476 F.3d 436, 441 (7th Cir. 2007), we explained that “to interpret ‘applicant’ as embracing ‘guarantor’ opens vistas of liability that the Congress that enacted the [ECOA] would have been unlikely to accept.” No such unexpected or unacceptable vistas of liability are opened here. Congress enacted the ECOA to prohibit discrimination in credit applications, mandated a broad construction of the statute, and explicitly stated that discouragement constitutes a violation of the statute. Case: 23-1654 Document: 78 Filed: 07/11/2024 Pages: 15
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No. 23-1654 Singleton v. Wulff, 428 U.S. 106, 120 (1976). This rule is subject to limited exceptions, AAR Int’l, Inc. v. Nimelias Enters. S.A., 250 F.3d 510, 523 (7th Cir. 2001), but ultimately is a decision “left primarily to the discretion of the courts of appeals, to be exercised on the facts of individual cases,” Singleton, 428 U.S. at 120. “In exercising this discretion, we have resolved issues which were not resolved below where, inter alia, ‘both parties have briefed and argued [the issue’s] merits,’ and where ‘the benefit of a district court hearing is minimal because proper resolution of the issue is clear.’” AAR Int’l, 250 F.3d at 523 (quoting United States v. Brown, 739 F.2d 1136, 1145 (7th Cir. 1984)). We adhere to the general rule today. If Townstone renews this argument on remand, the district court can address it in the first instance.
Conclusion We hold that Regulation B’s prohibition on the discouragement of prospective applications is consistent with the plain text of the ECOA. We do not, however, express an opinion on the underlying merits of the CFPB’s claim. Such analysis is best left for the district court to address on remand. REVERSED AND REMANDED
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Stipulation ()
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IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION
Bureau of Consumer Financial Protection,
Plaintiff,
v.
Townstone Financial, Inc.,
Defendant.
Case No. 1:20-cv-04176 Judge Franklin V. Valderrama Magistrate Judge Heather K. McShain STIPULATED FINAL JUDGMENT AND ORDER The Bureau of Consumer Financial Protection (Bureau) commenced this civil action against Townstone Financial, Inc. (Townstone) on July 15, 2020, to obtain injunctive and monetary relief and civil penalties. The November 25, 2020 Amended Complaint alleges that Townstone violated the Equal Credit Opportunity Act (ECOA), 15 U.S.C. §§ 1691–1691f, Regulation B, 12 C.F.R. § 1002.4(b), and the Consumer Financial Protection Act of 2010 (CFPA), 12 U.S.C. § 5536(a)(1)(A), in connection with Townstone’s offering or provision of Mortgage Loans. The Bureau and Townstone agree to entry of this Stipulated Final Judgment and Order (Order), without adjudication of any issue of fact or law, to settle and resolve all matters in dispute arising from the conduct alleged in the Amended Complaint.
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FINDINGS 1.
This Court has jurisdiction over the parties and the subject matter of this action.
2.
Townstone neither admits nor denies the allegations in the Amended Complaint, except as specified in this Order. For purposes of this Order, Townstone admits the facts necessary to establish the Court’s jurisdiction over it and over the subject matter of this action.
3.
Townstone waives all rights to seek judicial review, or otherwise challenge or contest the validity of, this Order and any claim it may have under the Equal Access to Justice Act, 28 U.S.C. § 2412, concerning the prosecution of this action to the date of this Order. Each Party agrees to bear their own costs and expenses, including, without limitation, attorneys’ fees. 4.
Entry of this Order is in the public interest. DEFINITIONS 5. The following definitions apply to this Order: a. “Board” means Townstone’s duly-elected and acting Board of Directors.
b. “Consumer Financial Product or Service” is synonymous in meaning and equal in scope to the definition of the term, as of the Effective Date, in section 1002(5) of the CFPA, 12 U.S.C. § 5481(5), and, Case: 1:20-cv-04176 Document #: 138 Filed: 11/07/24 Page 2 of 13 PageID #:866
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subject to applicable restrictions contained in the CFPA, includes but is not limited to:
i. extending credit and servicing loans, including acquiring, purchasing, selling, brokering, or other extensions of credit (other than solely extending commercial credit to a person who originates consumer credit transactions). c. “Effective Date” is the date on which the Order is entered by the Court.
d. “Enforcement Director” means the Assistant Director of the Office of Enforcement for the Consumer Financial Protection Bureau, or their delegee.
e. “Mortgage Loan” means a loan secured by residential real property or a home improvement loan, 12 U.S.C. § 2802(2). f. “Related Consumer Action” means a private action by or on behalf of one or more consumers or an enforcement action by another governmental agency brought against Townstone based on substantially the same facts as described in the Amended Complaint. g. “Townstone” means Townstone Financial, Inc. and its successors and assigns.
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CONDUCT PROVISIONS I.
IT IS ORDERED that:
6.
Townstone and its officers, agents, servants, and employees, and all other persons in active concert or participation with it who receive actual notice of this Order, whether acting directly or indirectly, may not engage in any acts or practices that violate ECOA, 15 U.S.C. § 1690 et seq., in connection with offering or providing Mortgage Loans.
7.
Within 60 days of the Effective Date, Townstone must take the following affirmative actions:
a. Maintain a compliance management system that is consistent with guidance provided in the Bureau’s Supervision and Examination Manual and is reasonably designed to ensure Townstone’s operations comply with ECOA;
b. Create, implement, and maintain policies and procedures to test Townstone’s compliance with the ECOA; and c. Require ongoing education and training in applicable federal consumer protection laws and the terms of this Order for all appropriate employees, with training tailored to individual job duties and other roles within the company.
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II.
Role of the Board and Executives 8.
Townstone’s Board has the ultimate responsibility for ensuring that Townstone complies with this Order.
9. Townstone’s Board and Chief Executive Officer must: a. Authorize whatever actions are necessary for Townstone to assess whether Townstone is complying with each paragraph and subparagraph of this Order; and b. Authorize whatever actions, including corrective actions, are necessary for Townstone to fully comply with each paragraph and subparagraph of this Order.
MONETARY PROVISIONS III.
Order to Pay Civil Money Penalty IT IS FURTHER ORDERED that:
10.
Under § 1055(c) of the CFPA, 12 U.S.C. § 5565(c), by reason of the violations of law alleged in the Amended Complaint, and taking into account the factors in 12 U.S.C. § 5565(c)(3), Townstone must pay a total civil money penalty of $105,000 to the Bureau.
11.
Within 30 days of the Effective Date, Townstone must pay the civil money penalty by wire transfer to the Bureau or the Bureau’s agent in Case: 1:20-cv-04176 Document #: 138 Filed: 11/07/24 Page 5 of 13 PageID #:869
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compliance with the Bureau’s wiring instructions. 12.
The civil money penalty paid under this Order will be deposited in the Civil Penalty Fund of the Bureau as required by Section 1017(d) of the CFPA, 12 U.S.C. § 5497(d).
13.
Townstone must treat the civil money penalty paid under this Order as a penalty paid to the government for all purposes. Regardless of how the Bureau ultimately uses those funds, Townstone may not: a.
claim, assert, or apply for a tax deduction, tax credit, or any other tax benefit for any amount of the civil money penalty paid under this Order; or b.
seek or accept, directly or indirectly, reimbursement or indemnification from any source, including but not limited to payment made under any insurance policy, with regard to any civil money penalty paid under this Order. This paragraph will not prevent Townstone from receiving capital contributions from its President and Chief Executive, Barry Sturner, to enable Townstone to pay the civil money penalty to the Bureau under the terms of this Order. 14.
In the event of any default on Townstone’s obligation to make payment under this Order, interest, computed under 28 U.S.C. § 1961, as amended, will Case: 1:20-cv-04176 Document #: 138 Filed: 11/07/24 Page 6 of 13 PageID #:870
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accrue on any outstanding amounts not paid from the Effective Date to the date of payment, and will immediately become due and payable. 15.
Townstone relinquishes all dominion, control, and title to the funds paid under this Order to the fullest extent permitted by law and no part of the funds may be returned to Townstone.
16.
The facts alleged in the Amended Complaint will be taken as true and be given collateral estoppel effect, without further proof, in any subsequent action by the Bureau to enforce the Order or its rights to any payment or monetary judgment under the Order.
17.
Townstone acknowledges that its taxpayer-identification number, which Townstone previously submitted to the Bureau, may be used for purposes of collecting and reporting on any delinquent amount arising out of this Order, in accordance with 31 U.S.C. § 7701.
18.
Within 30 days of the entry of a final judgment, order, or settlement in a Related Consumer Action, Townstone must notify the Enforcement Director of the final judgment, order, or settlement in writing. That notification must indicate the amount of redress, if any, that Townstone paid or is required to pay to consumers and describe the consumers or classes of consumers to whom that redress has been or will be paid.
19.
To preserve the deterrent effect of the civil money penalty in any Case: 1:20-cv-04176 Document #: 138 Filed: 11/07/24 Page 7 of 13 PageID #:871
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Related Consumer Action, Townstone may not argue that Townstone is entitled to, nor may Townstone benefit by, any offset or reduction of any monetary remedies imposed in the Related Consumer Action because of the civil money penalty paid in this action or because of any payment that the Bureau makes from the Civil Penalty Fund. If the court in any Related Consumer Action offsets or otherwise reduces the amount of compensatory monetary remedies imposed against Townstone based on the civil money penalty paid in this action or based on any payment that the Bureau makes from the Civil Penalty Fund, Townstone must, within 30 days after entry of a final order granting such offset or reduction, notify the Bureau and pay the amount of the offset or reduction to the U.S. Treasury. Such a payment will not be considered an additional civil money penalty and will not change the amount of the civil money penalty imposed in this action.
COMPLIANCE PROVISIONS IV.
Reporting Requirements IT IS FURTHER ORDERED that:
20.
Townstone must notify the Bureau of any development that may affect compliance obligations arising under this Order, including but not limited to a dissolution, assignment, sale, merger, or other action that would result in the emergence of a successor company; the creation or dissolution of a subsidiary, Case: 1:20-cv-04176 Document #: 138 Filed: 11/07/24 Page 8 of 13 PageID #:872
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parent, or affiliate that engages in any acts or practices subject to this Order; the filing of any bankruptcy or insolvency proceeding by or against Townstone; or a change in Townstone’s name or address. Townstone must provide this notice at least 30 days before the development or as soon as practicable after learning about the development, whichever is sooner.
21. Within 7 days of the Effective Date, Townstone must: a. designate at least one telephone number and email, physical, and postal address as points of contact, which the Bureau may use to communicate with Townstone; and b. identify all businesses engaged in the provision of Consumer Financial Products or Services for which Townstone is the majority owner, or that Townstone directly or indirectly controls, by all of their names, telephone numbers, and physical, postal, email, and internet addresses, and describe the activities of each such business, including the products and services offered, and the means of advertising, marketing, and sales.
22.
Townstone must report any change in the information required to be submitted under Paragraph 21 at least 30 days before the change or as soon as practicable after learning about the change, whichever is sooner.
Case: 1:20-cv-04176 Document #: 138 Filed: 11/07/24 Page 9 of 13 PageID #:873
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V.
Order Distribution and Acknowledgment IT IS FURTHER ORDERED that:
23.
Within 7 days of the Effective Date, Townstone must submit to the Enforcement Director an acknowledgment of receipt of this Order, sworn under penalty of perjury.
24.
Within 30 days of the Effective Date, Townstone must deliver a copy of this Order to each of its board members and executive officers. 25.
Townstone must deliver a copy of this Order to any business entity resulting from any change in structure referred to in Section IV, Reporting Requirements, and any future board members and executive officers, before they assume their responsibilities.
26.
Townstone must secure a signed and dated statement acknowledging receipt of a copy of this Order, within 30 days of delivery, from all persons receiving a copy of this Order under this Section.
27.
Ninety days from the Effective Date, Townstone must submit to the Bureau a list of all persons and their titles to whom this Order has been delivered under the Section of this Order titled “Order Distribution and Acknowledgment” and a copy of all signed and dated statements acknowledging receipt of this Order under Paragraph 26.
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VI.
Recordkeeping IT IS FURTHER ORDERED that:
28.
Townstone must maintain or create the following business records: All documents and records necessary to demonstrate full compliance with each provision of this Order.
29.
All documents and records must be maintained in their original electronic format. Data should be centralized, and maintained in such a way that access, retrieval, auditing and production are not hindered. 30.
Townstone must make the documents identified in Paragraph 28 available to the Bureau upon the Bureau’s request. VII.
Notices IT IS FURTHER ORDERED that:
31. Unless otherwise directed in writing by the Bureau, Townstone must provide all submissions, requests, communications, or other documents relating to this Order in writing, with the subject line, CFPB v. Townstone Financial, Inc., Case No. 1:20-cv-04176, and send them by email to [email protected]: ATTN: Enforcement Director Bureau of Consumer Financial Protection Office of Enforcement
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VIII.
Compliance Monitoring IT IS FURTHER ORDERED that:
32.
Within 14 days of receipt of a written information request from the Bureau, Townstone must submit the requested information, which must be made under penalty of perjury; provide sworn testimony; or produce documents. 33.
For purposes of this Section, the Bureau may communicate directly with Townstone, unless Townstone retains counsel related to these communications. 34.
Townstone must permit Bureau representatives to interview any employee or other person affiliated with Townstone who has agreed to such an interview regarding: (a) this matter or (b) compliance with the Order. The person interviewed may have counsel present.
35.
Nothing in this Order will limit the Bureau’s lawful use of compulsory process, under 12 C.F.R. § 1080.6.
IX.
Administration 36. The requirements of this Order will remain in effect for five years. 37. Should Townstone seek to transfer or assign all or part of its operations that are subject to this Order, Townstone must, as a condition of the transfer or assignment, obtain the written agreement of the transferee or assignee to comply Case: 1:20-cv-04176 Document #: 138 Filed: 11/07/24 Page 12 of 13 PageID #:876
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with all applicable provisions of this Order. Nothing in this Order will be construed to prevent Townstone from dissolving or ceasing its operations. X.
Retention of Jurisdiction IT IS FURTHER ORDERED that:
38. The Court will retain jurisdiction of this matter for the purpose of enforcing this Order. All pending motions are hereby denied as moot.
IT IS SO ORDERED
DATED this 7 day of November 2024.
___________________________________________ Hon. Franklin V. Valderrama UNITED STATES DISTRICT JUDGE Case: 1:20-cv-04176 Document #: 138 Filed: 11/07/24 Page 13 of 13 PageID #:877
Stipulation ()
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Case: 1:20-cv-04176 Document #: 134 Filed: 11/01/24 Page 1 of 3 PageID #:843 IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION Bureau of Consumer Financial Protection, Plaintiff, v.
Townstone Financial, Inc., and Barry Sturner, Defendants.
Case No. 1:20-cv-04176 Judge Franklin V. Valderrama Magistrate Judge Heather K. McShain STIPULATION Under Federal Rule of Civil Procedure 41(a)(1)(A)(ii), all parties to this case stipulate to dismissal with prejudice of all claims against the only individually named defendant, Barry Sturner, with each party to pay its own costs, fees, and expenses. Dated: November 1, 2024.
Respectfully submitted, CONSUMER FINANCIAL TOWNSTONE FINANCIAL, PROTECTION BUREAU INC., AND BARRY STURNER /s/ Jacob A. Schunk /s/ Steven M. Simpson JACOB A. SCHUNK (IA AT001908) STEVEN M. SIMPSON [email protected] DC Bar No. 462553 Tele: (202) 718-0394 ASHLEY TORKELSON LEVINE GREGORY W. JONES AZ Bar No. 032544 (IL ARDC #6313157) Pacific Legal Foundation [email protected] 3100 Clarendon Boulevard, Suite 610 MARY OLSON (IL ARDC # 629733) Arlington, VA, 22201 [email protected] Tel: (202) 888-6881 [email protected] 230 S. Dearborn St.
[email protected] Suite 1590 Chicago, IL 60604 OLIVER DUNFORD and FL Bar No. 017991 Pacific Legal Foundation
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Case: 1:20-cv-04176 Document #: 134 Filed: 11/01/24 Page 2 of 3 PageID #:844 1700 G Street NW Washington, DC 20552 Attorneys for Plaintiff 4440 PGA Boulevard, Suite 307 Palm Beach Gardens, FL 33410 Tel: (916) 503-9060 [email protected] SEAN P. BURKE Mattingly Burke Cohen & Biederman LLP 155 E. Market St. Suite 400 Indianapolis, IN 46204 MARX DAVID STERBCOW The Sterbcow Law Group LLC 824 Elmwood Park Boulevard, Suite 205 New Orleans, LA 70123 Attorneys for Defendants - 2 -
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Case: 1:20-cv-04176 Document #: 134 Filed: 11/01/24 Page 3 of 3 PageID #:845 CERTIFICATE OF SERVICE The undersigned hereby certifies that on November 1, 2024, I electronically filed the foregoing document with the Clerk of the Court via the CM/ECF system, which will cause a copy to be served upon counsel of record.
/s/ Jacob A. Schunk JACOB A. SCHUNK
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Case: 1:20-cv-04176 Document #: 136 Filed: 11/07/24 Page 1 of 1 PageID #:863 UNITED STATES DISTRICT COURT FOR THE Northern District of Illinois − CM/ECF NextGen 1.8 (rev. 1.8.1) Eastern Division Bureau of Consumer Financial Protection Plaintiff, v.
Case No.: 1:20−cv−04176 Honorable Franklin U. Valderrama Townstone Financial, Inc., et al.
Defendant.
NOTIFICATION OF DOCKET ENTRY This docket entry was made by the Clerk on Thursday, November 7, 2024: MINUTE entry before the Honorable Franklin U. Valderrama: The Court has reviewed the parties' stipulation to dismiss as to Defendant Barry Sturner [134]. Pursuant to the stipulation and, all claims against Defendant Barry Sturner are dismissed with prejudice, with each party to pay its own costs, fees, and expenses. The Court advises the parties that, generally speaking, Seventh Circuit decisions hold that dismissals "with prejudice" leave the Court without jurisdiction to enforce a settlement agreement. See Shapo v. Engle, 463 F.3d 641, 646 (7th Cir. 2006). Mailed notice. (jcm) ATTENTION: This notice is being sent pursuant to Rule 77(d) of the Federal Rules of Civil Procedure or Rule 49(c) of the Federal Rules of Criminal Procedure. It was generated by CM/ECF, the automated docketing system used to maintain the civil and criminal dockets of this District. If a minute order or other document is enclosed, please refer to it for additional information.
For scheduled events, motion practices, recent opinions and other information, visit our web site at www.ilnd.uscourts.gov.
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Case: 1:20-cv-04176 Document #: 145-2 Filed: 03/26/25 Page 1 of 10 PagelD #:904
IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
Bureau of Consumer Financial Case No. 1:20-cv-04176 Protection,
Plaintiff,
v. Judge Franklin U. Valderrama Magistrate Judge Heather K. McShain
Townstone Financial, Inc and Barry Sturner,
Defendants.
DECLARATION OF DAN BISHOP IN SUPPORT OF JOINT MOTION FOR RELIEF FROM AND VACATUR OF THE STIPULATED FINAL JUDGMENT AND ORDER
I, Dan Bishop, declare as follows under penalty of perjury:
1. On January 20, 2025, the newly inaugurated President of the United States ordered the agency heads to “identify and take appropriate action to correct past misconduct by the Federal Government related to censorship of [constitutionally] protected speech” and “to review the activities of ... agencies exercising civil and criminal enforcement authority ... and identify any instances” reflecting improper targeting of enforcement actions “oriented more toward inflicting political pain than toward pursuing actual justice or legitimate governmental objectives.” Exec. Order No. 14149 § 2(d), 90 Fed. Reg. 8,243 (Jan. 20, 2025); Exec. Order No. 14147 §§ 1, 3, 90 Fed. Reg. 8,235 (Jan. 20, 2025).
2. Iam employed as Senior Advisor to the Office of Management and Budget and detailed part time to the Plaintiff (“CFPB”). In both capacities, I serve under the direct supervision of Russell T. Vought, who is the Senate-confirmed Director of OMB and Acting Director of CFPB.
3. Director Vought directed me to undertake a general review of the supervisory and
enforcement activities of CFPB and to examine the agency’s handling of this matter. To perform
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this task, I arranged for personal access to the agency’s electronic records, which are maintained in SharePoint and can be browsed and searched through that interface and custom software tools.
4. To preserve agency enforcement prerogatives and privileges to the greatest extent possible consistent with fundamental fairness, I set forth below details that I have observed in agency records but am forbearing to place the referenced documents themselves on public record.! The documents I reviewed make clear that the CFPB lacked a sufficient factual predicate for the seven-year saga to which it subjected Defendant Townstone. Those documents also make clear that agency lawyers misled their superiors in enforcement decisions and were affected by animus toward the publicly expressed viewpoints of Townstone’s owner. This Declaration cites authorities solely to illustrate how investigative and prelitigation decisions turned on misstatements and omissions of requested information about law and fact and, at key points, on Defendant’s expressed political viewpoints. The Motion explains why this targeting was impermissible.
THE BEGINNING OF THE INVESTIGATION
5. CFPB’s Townstone investigation commenced following a May 5, 2017 memo reporting that a research team had run a “redlining screen” on Home Mortgage Disclosure Act (HMDA) data, identifying “more than 22,000 institution/MSA combinations” to consider for investigation. To reduce that number, researchers used “characteristics” such as “fewer than 500 applications overall,” an “average loan amount [ ] greater than $1M,” and a “shortfall” in the “number of applications needed to reach parity [i.e. quota] with peers in majority-minority areas”
less than 30. This produced 75 potential targets, further reduced, by certain “qualitative research”
' Defendants’ counsel likewise only reviewed this Declaration and were not disclosed the underlying referenced documents.
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factors, to 17. The memo did not address whether the selection of “characteristics” or “qualitative research” biased the statistical disparities data.
6. The memo described Townstone as “small,” having “application volume under 1K,” 876 total over the three-year period, but not low enough to be culled by the minimum of 500. Townstone’s “shortfall” of applications was 60 — 31 shy of escaping scrutiny.
7. The memo also noted Townstone was “founded by people with a background in real estate” who “work closely with real estate agents and host a local radio show.” Without any articulated suspicion of a practice that caused the statistical disparity, CFPB initiated a civil investigative demand (CID).
THE INVESTIGATIVE DEMAND
8. In an April 2018 memo, CFPB’s fair lending staff recommended to leadership that Townstone should continue to be investigated, reporting these additional details:
a. It “generated the vast majority of its business through radio outreach.”
b. It received significant repeat and referral applications, which “may explain why” it had few from African-American and Hispanic consumers.
c. Its “single office in downtown Chicago,” limited billboard advertising, “targeted marketing areas, and business methodology or plan, do not appear to have any significant impact on Townstone’s lending in majority-minority areas.”
d. Sole owner Barry Sturner “encouraged” Townstone’s “7 active loan officers” to promote and use “mortgage products geared toward ... low-income applicants.”
e. Townstone had employed Chinese- and Spanish-speaking ethnic minority loan officers to do outreach to non-English-speaking communities, though “Townstone has never
had an African-American loan officer.”
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f. CFPB professed to see a “possib[ility]” that Townstone’s “choice of [radio] stations and corresponding demographics ... limit[s] awareness ... among African-American and Hispanic consumers.”
g. CFPB used “an audio analytics mining software called Nexidia” to term-search 78.5 hours of Townstone’s live-recorded content — 31 hour-long Townstone Saturday AM radio programs coupled with 95 30-minute Townstone podcasts published on social media. “Much of the content of the show is overtly political, and often highly critical of the Bureau ...” CFPB “mined” six remarks by Townstone hosts out of just one radio show and five podcasts. The mined remarks occurred within 16 audio minutes, 0.33 percent of the total recorded content. The remarks were “disconcerting” and “could be interpreted as inappropriate, incorrect, or insensitive.’ Two of the remarks were referenced in the Complaint (referring to “hoodlum weekend” and police presence being the sole factor preventing an urban area from descending into a “war zone” and describing the “Jungle Jewel on Division”). The others were similar.
9. In sum, CFPB’s own assessment of the results of its investigation (1) identified six comments that were politically controversial; but recognized that (2) racial disparity in lending statistics did not appear to be explained by Townstone’s office location, any targeted marketing area or advertising, or business methodology or plan; (3) Townstone encouraged the use of programs to help disadvantaged populations and hired racial and language minority loan-officers; and (4) Townstone’s use of an AM talk radio station could explain its applicant demographics. Nevertheless, CFPB staff proposed to keep pressing ahead on the matter to “provide an opportunity for further investigation into Townstone’s views on race and racism”: “[G]iven the gravity of
intentional discrimination in the consumer financial marketplace (here, potentially with animus)
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there is strong need for deterrence.”
10. After taking testimony from all loan officers, CFPB enforcement attorneys submitted a recommendation memo to “settle or sue” in April 2019. The only new evidence was testimonial admissions by Townstone’s owner that one or more of the statements “could have” or “would possibly” discourage a prospective black loan applicant. To this, agency attorneys added their conclusory assertions that the remarks “could have been perceived as insulting to African- American and Hispanic listeners.” They furnished no evidence of actual consumers offended.
11. Nevertheless, the memo advised the Director:
a. That “[t]he investigation revealed direct evidence” of discrimination in the six remarks.
b. That CFPB had “a strong case” of violation of Reg B under ECOA, which forbids “{a] creditor [to] make any oral or written statement, in advertising or otherwise, ... that would discourage on a prohibited basis a reasonable person from making ... an application.” 12 C.F.R. § 1002.4(b). The memo flagged Townstone’s argument that six isolated remarks could not have caused the “shortfall” in applications but countered that “[a]ny statement that ‘would discourage’ a single prospective applicant violates Regulation B, regardless of whether the statement significantly impacts the lender’s application volume.”
c. That “circumstantial evidence also could support the conclusion that Townstone engaged in acts or practices ... that discouraged” applicants from minority neighborhoods, specifically that: (1) Townstone received fewer mortgage applications from high-minority census tracts than group of unspecified “peers,” and (2) Townstone had no race-conscious marketing to or hiring of blacks.
d. That CFPB should seek race-conscious remedies by settlement: loan subsidies “up to
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12.
$250,000,” “financial-education programs” “up to $15,000,” advertising “up to $30,000,” “targeted recruitment of African-American” loan officers, incentive compensation “for generating applications from [black communities],” “radio shows” touting “Townstone’s plan to increase its lending in African-American communities”; plus, a “penalty of $1,000,000.” To explain the penalty amount, the memo calculated the maximum per-day civil penalty for a reckless violation ($28,906) times four years (1,460 days): $28,906 x 1460 = $42,202,760, and then stated $1 million would be “appropriate” because of “Townstone’s small size.” The $250,000 loan subsidies target also tied to the theory of a four-year calculation.
The “sue or settle” memo omitted to disclose and/or misstated:
Reg B reaches only “oral or written statement[s]” that “would discourage on a prohibited basis.” 12 C.F.R. § 1002.4(b). To be actionable, statements must express an explicit racial preference. See Inclusive Communities Project, Inc. v. Lincoln Prop. Co., 920 F.3d 890, 912 (Sth Cir. 2019) (ads stating landlord does not accept Section 8 vouchers not a violation because no explicit racial preference expressed; “the supposition that [] an ordinary reader would infer a racial preference ... is entirely speculative and unwarranted”). The six identified statements did not communicate a racial preference.
If Reg B had been violated, damages would be limited to those caused by specific statements. See Ragin v. Harry Macklowe Real Estate Co., 6 F.3d 898, 907-08 (2d Cir. 1993) (allowing $2,500, no punitives, for distress to each plaintiff who viewed ads with racial messaging). The memo recited no evidence that any person heard or was affected
by the selected Townstone remarks.
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c. Outside Reg B, stray remarks disconnected from a credit decision do not constitute “direct evidence” of discrimination. Perez v. Thorntons, Inc., 731 F.3d 699, 709-10 (7th Cir. 2013).
d. Nor is a circumstantial case of racial discrimination alleged by pairing a statistical disparity in mortgage applications to isolated remarks that could not even be characterized as bigoted. Even if they could have been, “[b]igotry, per se, is not actionable. It is actionable only if it results in injury to a plaintiff; there must be a real link between the bigotry and an adverse [ ] action.” Adams v. Wal-Mart Stores, Inc., 324 F.3d 935, 939 (7th Cir. 2003). No reported evidence tended to prove a causal connection between suspected bigotry and the loan application “shortfall.”
e. The tabulation of damages over a continuous four-year period was baseless — as was the assertion that Townstone merited a civil penalty for recklessness. The memo stated that Townstone’s owner admitted to recklessness, but as described elsewhere, he in fact only admitted in retrospect a possibility that one or more remarks “could possibly” be offensive to blacks, not that the words were spoken with conscious disregard to the risk of giving offense at the time.
f. Remedies in discrimination cases should be designed “to eliminate racial disparities through race-neutral means.” Texas Dept. of Housing and Community Affairs v. Inclusive Communities Project, Inc., 576 U.S. 519, 545 (2015). Remedies “that impose racial targets or quotas might raise more difficult constitutional questions.” Id.
13. Upon receipt of the memo, the Director asked what was known about the audience
demographics of the radio station that aired Townstone’s show and drove most of its loan
applications. The Director also asked for guidance about race-conscious remedies. On May 31,
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2019, investigators responded that they had no information about the demographics and did not assess the obvious possibility that that could explain Townstone’s “application shortfall.” Investigators reported that the race-conscious remedies were consistent with agency practice but again omitted to advise of Supreme Court guidance that they are to be avoided where possible. 14. On August 23, 2019, Townstone submitted 165 pages of detailed analysis of the allegations, a survey of black respondents by a consumer testing firm of the remarks CFPB singled out, and a statistical analysis by a mortgage industry compliance firm comparing Townstone’s mortgage applications and originations to specified peers. Per the consumer survey, black respondents found no offense in the program remarks singled out by CFPB, and the statistical analysis concluded Townstone was not an outlier in lending activity concerning black applicants. 15. Two business days later, CFPB investigators dismissed Townstone’s arguments without seriously engaging them. Most significantly, investigators devoted just three sentences and a footnote to Townstone’s seven pages of argument that the CFPB’s enforcement posture threatened Townstone’s First Amendment interests. Despite observing from the beginning that “the content of [Townstone’s] radio show is overtly political,” investigators declared that it was “not protected” because it was “commercial speech.” Citing only two cases from the 1980s, they failed to address 40 years of relevant First Amendment precedent, including Citizens United v. Federal Election Comm’n, 558 U.S. 310, 365 (2010) (“[T]he Government may not suppress political speech on the basis of the speaker’s corporate identity.”), Sorrell v. IMS Health Inc., 564 U.S. 552, 579 (2011) (the government may not suppress truthful commercial speech just because it is controversial or not to the government’s liking), and Nat’] Inst. Of Family & Life Advocates v. Becerra, 585 U.S. 755, 768-69 (2018) (rejecting category of “professional speech”; narrowing
commercial speech to factual disclosures and regulation of professional conduct incidentally
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involving speech) — all incompatible with that blanket assertion.
16. At a September 23, 2019 briefing, all of this prompted questions from the Director, as summarized in drafts of an agency response:
The Director requested broader context regarding prior ECOA cases, including
what types of evidence are typically relied on in those cases, what novel issues may
be present here in an action against a non-depository lender, and more context about the “reasonable person” standard under Regulation B discouragement claims.
For the ensuing seven months (until late April 2020), Enforcement and Legal Division staffs wrote and circulated dozens of drafts of a response to these questions — but never to the Director.
17. CFPB employees saved captures of tweets posted by Townstone’s owner in the course of unrest following the May 25, 2020 death of George Floyd. A pdf capture of the account profile page is filenamed “Townstone Fin Tweets BS posts that he was victim of police.pdf.” Another capture, bearing a last modified date of June 8, 2020, and filenamed “Townstone tweet from June 2.pdf,” features Townstone’s owner expressing opposition to looting.
THE SUIT AGAINST TOWNSTONE
18. Without a resolution of the questions posed by the Director, on July 6, 2020, the Director of Enforcement advised other senior officials by email that he had “provided my recommendation that the Bureau should pursue an enforcement action in the Townstone matter,” referencing an impending limitations deadline. On Friday, July 10 at 2:58 PM, he emailed again that he had advised the Director of CFPB that “I see no factual or legal impediment to proceeding to suit,” and that the Director had “asked to listen to the Markham call.”
19. Sixteen minutes later, the Director of the Office of Fair Lending and Equal Opportunity (“OFLEO”) emailed the Director, complaining that the Townstone matter had “languish[ed]” since the Fall and that her office was “unable to obtain copies of any briefing or background materials”
and urging “consider[ation of] authorizing Enforcement to file the Townstone lawsuit.” (In
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apparent contradiction, on April 15, 2020, at 4:19 PM, an Enforcement lawyer had emailed the draft memo circulating among Enforcement and Legal Division staff to the OFLEO Senior Counsel, who acknowledged receipt.) The Director responded to the OFLEO Director within 30 minutes, acknowledging her input to multiple senior agency leaders but not announcing any decision.
20. The following Monday, July 13, the Enforcement Director emailed senior Enforcement officials, “The Director has authorized us to file suit on Townstone ....” CFPB sued Townstone on July 15.
21. The final four years of Townstone’s saga are largely of record in this action.’ Considering that record and the revelations in this declaration, the CFPB supports vacating the consent judgment, dismissing the claims, and permitting the agency to return to Townstone the civil penalty Townstone paid.
This 26th day of March, 2025.
Dan Bishop
? Two more disclosures from agency records are relevant to the Court’s review at this juncture and to restoring fairness. One year after filing suit, CFPB contracted to pay $1,380,420 to “consumer behavior experts” to survey consumers about Townstone’s broadcast remarks. In March 2022, CFPB’s Director established a “cross-cutting priority” of “racial equity” and communicated to the enforcement division that it was “endemic to all areas of our focus.” The Townstone matter was tagged in that effort.
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IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION
Bureau of Consumer Financial
Case No. 1:20-cv-04176 Protection,
Plaintiff,
v.
Judge Franklin U. Valderrama
Magistrate Judge Heather K. McShain
Townstone Financial, Inc. and Barry Sturner,
Defendants.
JOINT RULE 60(B)(6) MOTION FOR RELIEF FROM AND VACATUR OF THE STIPULATED FINAL JUDGMENT AND ORDER
Pursuant to Rule 60(b)(6) of the Federal Rules of Civil Procedure, Plaintiff Bureau of Consumer Financial Protection (“Bureau”) and Defendant Townstone Financial, Inc. (“Townstone”) jointly move the Court to relieve Townstone from the November 7, 2024 Stipulated Final Judgment and Order, ECF No. 138, and to vacate that Judgment and Order in its entirety. The parties have submitted a proposed Order and respectfully ask that the Court enter it. Upon this Court’s grant of Rule 60(b)(6) relief, all parties to this action stipulate to the dismissal with prejudice of all claims against Townstone and Mr. Sturner pursuant to Federal Rule of Civil Procedure 41(a)(1)(A)(ii), (B).
Case: 1:20-cv-04176 Document #: 145 Filed: 03/26/25 Page 1 of 3 PageID #:887
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Dated: March 26, 2025.
Respectfully submitted,
CONSUMER FINANCIAL
TOWNSTONE FINANCIAL, INC., PROTECTION BUREAU
AND BARRY STURNER /s/ Mark Paoletta
/s/ Steven M. Simpson MARK PAOLETTA (DC Bar # 422746)
STEVEN M. SIMPSON Chief Legal Officer
DC Bar No. 462553 [email protected]
ASHLEY TORKELSON LEVINE Tel: (771) 959-6080
AZ Bar No. 032544 VICTORIA DORFMAN (DC Bar # 487567) Pacific Legal Foundation (NY Bar # 4656625)
3100 Clarendon Boulevard, Suite 1000 [email protected]
Arlington, VA, 22201 DANIEL SHAPIRO
Tel: (202) 888-6881 (FL Bar # 1011108)
[email protected] [email protected]
1700 G Street NW
OLIVER J. DUNFORD Washington, DC 20552
FL Bar No. 017991
Pacific Legal Foundation Attorneys for Plaintiff
4440 PGA Boulevard, Suite 307 Palm Beach Gardens, FL 33410 Tel: (916) 503-9060 [email protected]
SEAN P. BURKE RAY BIEDERMAN Mattingly Burke Cohen & Biederman LLP 155 E. Market St. Suite 400 Indianapolis, IN 46204
MARX DAVID STERBCOW The Sterbcow Law Group LLC 824 Elmwood Park Boulevard, Suite 205 New Orleans, LA 70123
Attorneys for Defendants
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CERTIFICATE OF SERVICE The undersigned hereby certifies that on March 26, 2025, I electronically filed the foregoing document with the Clerk of the Court via the CM/ECF system, which will cause a copy to be served upon counsel of record.
/s/ Mark Paoletta MARK PAOLETTA Case: 1:20-cv-04176 Document #: 145 Filed: 03/26/25 Page 3 of 3 PageID #:889
Memorandum ()
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IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION
Bureau of Consumer Financial
Case No. 1:20-cv-04176 Protection,
Plaintiff,
v.
Judge Franklin U. Valderrama
Magistrate Judge Heather K. McShain
Townstone Financial, Inc. and Barry Sturner,
Defendants.
MEMORANDUM OF LAW IN SUPPORT OF JOINT MOTION FOR RELIEF FROM AND VACATUR OF THE STIPULATED FINAL JUDGMENT AND ORDER
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I.
INTRODUCTION This Court is familiar with the facts of this case, as they were presented by the parties during its pendency. As explained below and in the attached Declaration of Dan Bishop, Senior Advisor to the Consumer Financial Protection Bureau (“Bureau” or “CFPB”), there were significant undisclosed problems with the Bureau’s treatment of this case, resulting in unmerited investigation and litigation and the infringement of the Defendants’ First Amendment rights, which warrant relief under Rule 60(b).
On July 15, 2020, the Bureau brought this action against Townstone and Barry Sturner for allegedly engaging in acts or practices discouraging on a prohibited basis prospective applicants from seeking credit, in violation of (i) the Equal Credit Opportunity Act (“ECOA”), 15 U.S.C. §§ 1691–1691f; (ii) its implementing Regulation B, 12 C.F.R. § 1002.4(b); and (iii) the Consumer Financial Protection Act of 2010 (“CFPA”), 12 U.S.C. § 5536(a)(1)(A). On November 25, 2020, the Bureau filed an amended complaint adding a claim for fraudulent transfer. The Court dismissed on statutory grounds on February 3, 2023, but the Seventh Circuit reversed. On remand, the parties entered into a consent decree that required Townstone to pay a $105,000 fine. The Court entered the Final Judgment on November 7, 2024. On January 20, 2025, the newly inaugurated President of the United States ordered the agency heads to “identify and take appropriate action to correct past misconduct by the Federal Government related to censorship of [constitutionally] protected speech” and “to review the activities of … agencies exercising civil and criminal enforcement authority … and identify any instances” reflecting improper targeting of enforcement actions “oriented more toward inflicting political pain than toward pursuing actual justice or legitimate governmental objectives.” Exec. Order No. 14149 § 2(d), 90 Fed. Reg. 8,243 (Jan. 20, 2025); Exec. Order No. 14147 §§ 1, 3, 90 Case: 1:20-cv-04176 Document #: 145-1 Filed: 03/26/25 Page 2 of 14 PageID #:891
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Fed. Reg. 8,235 (Jan. 20, 2025). Declaration of Dan Bishop (“Decl.”) ¶ 1. Pursuant to the President’s directive, the Bureau’s new leadership undertook a review of agency records concerning recent enforcement actions, including this one. Decl. ¶ 3. The Bureau discovered within its internal case files indications that the Bureau commenced and continued its investigation and litigation without a substantial predicate of actionable facts and targeted codefendants Townstone and Townstone President and CEO, Barry Sturner, based on constitutionally protected speech. Decl. ¶ 4. This action should not have been filed. Decl. ¶ 4. At the time the suit was pending and before entering into the consent decree, the Defendant could not have known about the analytical deficiencies within the agency’s processes or the extent of the targeting on the basis of his viewpoints. Neither did the Court, which drew lines in the discovery process to prevent the Bureau from abusing First Amendment values. Order at 13, ECF No. 104. Nonetheless, it is now clear the Bureau did precisely that. Decl. ¶ 4. Accordingly, the parties jointly move this Court under Rule 60(b)(6) to set aside the judgment and the consent decree, as the judgment is inequitable and undermines confidence in the judicial process.
II.
LEGAL STANDARD RULE 60(B)(6) ALLOWS THE COURT TO SET ASIDE THE JUDGMENT FOR “ANY REASON THAT JUSTIFIES RELIEF.”
Rule 60(b)(6) “vests power in courts adequate to enable them to vacate judgments whenever such action is appropriate to accomplish justice.” Klapprott v. United States, 335 U.S. 601, 615 (1949) (granting motion to set aside judgment). Rule 60(b)(6) is “open-ended” and “flexible,” such that the Court has “wide discretion” when entering a ruling. See Pearson v. Target Corp., 893 F.3d 980, 984 (7th Cir. 2018) (citing Buck v. Davis, 137 S. Ct. 759, 777 Case: 1:20-cv-04176 Document #: 145-1 Filed: 03/26/25 Page 3 of 14 PageID #:892
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(2017)) (granting Rule 60(b)(6) motion to vacate judgment). Where the motion is joint, the constraints on Rule 60(b)(6) relief are relaxed. For example, this Court’s sister district certified to the Seventh Circuit willingness to grant a Rule 60(b)(6) motion where the “motion was jointly filed by the parties due to recent settlement.” Cummins v. Illinois, No. 02-CV-4201-JPG, 2010 WL 334514, at *2 (S.D. Ill. Jan. 25, 2010). In such circumstances, the court noted, “[a]bsent is the general concern that Rule 60(b)(6) ‘is not an appropriate vehicle for addressing simple legal error, for rehashing old arguments, or for presenting arguments that should have been raised before the Court made its decision.’” Id. (quoting O’Neil v. Acevedo, Case No. 03–cv–838–JPG, 2008 WL 3382627, at *2 (S.D. Ill. Aug. 11, 2008)). Likewise, in Marcus A. T. v. Comm’r of Soc. Sec., No. 3:21-CV-273-DWD, 2023 WL 3304727, at *2 (S.D. Ill. May 8, 2023), the court granted an unopposed motion: Here, after considering Plaintiff’s arguments on appeal and attending a courtordered mediation, Defendant reconsidered her appellate strategy. The parties now agree it is appropriate to vacate the Court’s [judgment]. . . . See Fed. R. Civ. P. 60(b)(6); Kemp v. United States, 142 S. Ct. 1856, 1861 (2022); Braun v. Vill. Of Palatine, 56 F.4th 542, 554 (7th Cir. 2022); Pearson, 893 F.3d at 984; see also Manjarrez v. Berryhill, No. 17-cv-300, 2019 WL 2710271, *1 (N.D. Ind. Apr. 9, 2019) (in case presenting the same procedural posture, granting Defendant’s unopposed motion for relief under Rule 60(b)(6)).
See also, e.g., Mayes v. City of Hammond, Ind., 631 F. Supp. 2d 1082, 1088 (N.D. Ind. 2008) (granting joint request for vacatur, citing in part “the joint nature of the request for vacatur”); cf. Orlowski v. Eriksen, No. 07-C-4015, 2010 WL 2401938 (N.D. Ill. Jun. 10, 2010) (granting unopposed Rule 60(b)(6) motion).
Giving weight to the parties’ unanimity in the motion flows from the nature of Rule 60(b)(6), which “is fundamentally equitable,” Ramirez v. United States, 799 F.3d 845, 851 (7th Cir. 2015) (citations omitted). Thus, although Rule 60(b)(6) is an extraordinary remedy, the Court’s latitude is wide enough to take into account the parties’ mutual posture: The Court is Case: 1:20-cv-04176 Document #: 145-1 Filed: 03/26/25 Page 4 of 14 PageID #:893
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“guided by the array of equitable factors of justice and hardship traditionally balanced by district courts in considering requests for Rule 60(b) relief,” such as “the public interests in precedent, preclusion, and judicial economy and the circumstances, hardships, and interests of private parties.” Mayes, 631 F. Supp. 2d at 1088; see also Stryker Spine v. Spine Group of Wisconsin, LLC, 2018 WL 1054386, at *2–3 (E.D. Wis. Feb. 26, 2018) (citing cases). Among the “many factors” the court considers are the risk of injustice to the parties and the risk of undermining the public’s confidence in the judicial process. See Braun, 56 F.4th at 554 (quoting Buck, 137 S. Ct. at 778); see also Marcus A. T., 2023 WL 3304727, at *1–2 (citing cases). Finally, with respect to a consent decree, which is the subject of this Joint Motion, Rule 60(b) supplies an even more “flexible standard” for a District Court to adjust its final judgment or order, to harmonize it with changed circumstances in law or fact. Rufo v. Inmates of Suffolk Cnty. Jail, 502 U.S. 367, 380, 393 (1992); see also O’Sullivan v. City of Chicago, 396 F.3d 843, 866 (7th Cir. 2005) (similar); South Suburban Housing Ctr. v. Berry, 186 F.3d 851, 855 n.1 (7th Cir. 1999) (“A court of equity has the power to modify a consent decree to adapt for changed circumstances.”). This is especially the case where the sought-after adjustment “relates to the vindication of a constitutional right.” Rufo, 502 U.S. at 389 n.7. III.
ARGUMENT THE JOINT MOTION SHOULD BE GRANTED IN THE INTEREST OF JUSTICE
Once new CFPB leadership undertook the review of the history of this case, it became clear from the totality of internal evidence that this case has suffered from deficiencies on the merits and Townstone was targeted because of its protected speech. The Bureau identified this small business and initiated investigation and then litigation under the Equal Credit Opportunity Act without substantial evidence of discrimination and based on the expressed political views of Case: 1:20-cv-04176 Document #: 145-1 Filed: 03/26/25 Page 5 of 14 PageID #:894
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Mr. Sturner, Townstone’s principal. Decl. ¶ 5. As this Court is aware, during the pendency of the case, Defendant did raise First Amendment issues and received significant support from several amici.
The First Amendment issues were not reached in four years of litigation, which followed three years of investigation. But, neither Defendant, nor its amici, nor this Court could fully fathom how egregious the First Amendment issues were without access to the Bureau’s internal files, and so the Defendant ended up agreeing to a consent decree with the Bureau to put an end to the costly litigation in the wake of the Seventh Circuit reversing this Court’s dismissal on statutory grounds. Had Defendant been able to access the internal agency records demonstrating that the Bureau failed to wrestle with the deficiencies in this case and that it was targeted, it would have been able to advance a more strongly supported First Amendment, viewpoint-based targeting defense against the Bureau. Indeed, Defendants sought discovery regarding CFPB’s “interpretation of Townstone’s statements, including any documents concerning the political and social views” of the Defendants, see Mot. Compel, ECF No. 89; Mem. Supp. Mot. Compel, ECF No. 90, but CFPB refused to produce any such information, and the magistrate judge sided with CFPB. Order at 15, ECF No. 104.1 What the Bureau has now uncovered and summarizes in the Bishop declaration justifies vacatur.
The Amended Complaint relies on postings on both Facebook and Twitter (now X) to provide examples of the Defendant’s speech regarding the real-life facts confronting the people of Chicago. The Bureau then used these statements as predicates for the ECOA enforcement action. Starting at least as early as 2014, the Townstone Financial Show was conducted weekly on AM radio and reached the entire Chicago MSA. A weekly podcast of
1 Defendants filed objections to the Magistrate’s ruling with the District Court, see ECF No.105, but those objections were not ruled upon when the District Court dismissed the case in November 2024.
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the radio show has been available exclusively online. Townstone Financial Show radio broadcasts and podcasts have been available on the Townstone website. Both the radio show and podcast have been streamed on Facebook Live and then advertised on Facebook, Twitter, and LinkedIn.
Am. Compl. at ¶ 29.
The Amended Complaint does not tell the whole story, however. The Bureau used a variety of undisclosed tactics to gain access to this information, which further emboldened it to pursue this enforcement action and to continue to litigate it through appeal and, ultimately, drive Townstone into a consent decree to put an end to crushing pre-litigation and litigation expenses. Decl. ¶ 8. Among other tactics, the Bureau used “an audio analytics mining software called Nexidia” to term-search 78.5 hours of Townstone’s live-recorded content — 31 hour-long Townstone radio programs on Saturday AM talk radio together with 95 30-minute Townstone podcasts published on Thursdays on social media. Decl. ¶ 8. A memo from the fair lending staff to then-senior leadership at the Bureau observed that “[m]uch of the content of the show is overtly political, and often highly critical of the Bureau,” with only a perfunctory notation that this was “irrelevant” to the investigation. Decl. ¶ 8. From the recordings, CFPB’s radio-show “mining” identified six comments by Townstone hosts, appearing in one radio show and five podcasts —16 minutes of the total recorded content (one-third of one percent) — that, according to CFPB staff, were “disconcerting” and “could be interpreted as inappropriate, incorrect, or insensitive.” Decl. ¶ 8.
But the CFPB’s own assessment of the results of its first-stage investigation (1) identified only a handful of allegedly “discouraging” comments, none of which were explicitly and unambiguously hostile on a prohibited basis; (2) recognized that racial statistical disparities in its lending did not appear to be explained by Townstone’s office location, any targeted marketing Case: 1:20-cv-04176 Document #: 145-1 Filed: 03/26/25 Page 7 of 14 PageID #:896
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area or advertising, or business methodology or plan; (3) recognized that Townstone encouraged the use of programs to help disadvantaged populations and hired racial and language minority loan-officers; (4) identified no prospective applicants who complained about the statements or were even aware of them; and (5) speculated that Townstone’s use of an AM talk radio station for its weekly show could innocently limit its exposure to prospective black and Hispanic loan applicants. Decl. ¶ 9, 12(b). Nevertheless, CFPB staff proposed to keep investigating to “provide an opportunity for further investigation into Townstone’s views on race and racism.” Decl. ¶ 9. Indeed, for the rest of this saga, up until the settlement, the Bureau continued to target Townstone based on the political views of its owner. Decl. ¶ 9–10. This was not information that Defendant had at the time, and it has only come to light now.2 The Bureau’s targeting based on the protected speech persisted notwithstanding this Court’s discovery ruling. In a December 12, 2022 Order, this Court denied on Rule 26(b)(1) grounds the Bureau’s Motion to Compel Discovery (ECF No. 87), insofar as it asked this Court to compel Mr. Sturner to turn over “all communications with his friends, family and associates touching upon his racial, religious, gender-based, or age-based biases, if he had any,” as well as “all of his communications about Mexicans or Canadians, or about particular neighborhoods.” Order at 13, ECF No. 104. This Court specifically found that the relevance of the Bureau-sought discovery to Townstone’s treatment of prospective credit applicants was “[not] central enough to the case to warrant the privacy invasion that would result from compelled production of every
2 Indeed, had the CFPB not conducted the recent internal investigation, the evidence presented herein may never have come to light. Defendants were repeatedly denied this information in discovery because the CFPB viewed the evidence as irrelevant, and in some cases, privileged. See Mem. Supp. Mot. Compel at 3–4, ECF No. 90; Order at 15–16, ECF No. 104. Case: 1:20-cv-04176 Document #: 145-1 Filed: 03/26/25 Page 8 of 14 PageID #:897
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Sturner [communication].” Id. at 14. In crafting that discovery order, this Court clearly acted to protect First Amendment values.
Nevertheless, based on what has been brought to light from the internal case file review conducted by the Bureau over the course of the last month, the parties agree that the Bureau sought to infringe, rather than protect, First Amendment values. Decl. ¶ 11–12. From the investigation to the litigation, and ultimately to the settlement, the Bureau focused on the Defendant’s protected speech and repeatedly disregarded governing case law that did not support the Bureau’s actions. The overall review of the Bureau’s internal files confirms that, based on the totality of circumstances, this entire action constituted an effort on the part of the Bureau to “‘excis[e] certain ideas [and] viewpoints from the public dialogue’” to which Townstone and Sturner in particular had regularly contributed. 303 Creative LLC v. Elenis, 600 U.S. 570, 588 (2023) (quoting Turner Broad. Sys., Inc. v. FCC, 512 U.S. 622, 642 (1994)). The Bureau targeted Townstone Financial, on deficient grounds, and based on protected speech, especially on social media. The Supreme Court and the Seventh Circuit have repeatedly held that the government cannot use its coercive powers, directly or indirectly, to punish speech it disagrees with, by a threat of prosecution, let alone by launching an actual prosecution. Most recently, in National Rifle Association of America v. Vullo, the Court reaffirmed that a government official cannot “use the power of the State to punish or suppress disfavored expression.” 602 U.S. 175, 188 (2024).
The Court in National Rifle Ass’n of Am. v. Vullo relied on Bantam Books v. Sullivan, 372 U.S. 58 (1963). There, a state commission used its power to investigate and recommend criminal prosecution to censor publications that, in its view, were “objectionable” because they threatened “youthful morals.” National Rifle Ass’n of Am., 602 U.S. at 188 (quoting Bantam Case: 1:20-cv-04176 Document #: 145-1 Filed: 03/26/25 Page 9 of 14 PageID #:898
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Books, 372 U.S. at 59–62, 71). But “the First Amendment prohibits government officials from relying on the ‘threat of invoking legal sanctions and other means of coercion … to achieve the suppression’ of disfavored speech.” Id. at 189 (quoting Bantam Books, 372 U.S. at 67). “Although the commission lacked the ‘power to apply formal legal sanctions,’ the distributor ‘reasonably understood’ the commission to threaten adverse action, and thus the distributor’s ‘compliance with the [c]ommission’s directives was not voluntary.’” Id. (quoting Bantam Books, 372 U.S. at 66–68). “Ultimately, Bantam Books stands for the principle that a government official cannot do indirectly what she is barred from doing directly: A government official cannot … coerce a private party to punish or suppress disfavored speech on her behalf.” Id. at 190.
Likewise, in 303 Creative LLC, the Court held that Colorado sought to put a citizen to an impermissible choice: “If she wishes to speak, she must either speak as the State demands or face sanctions for expressing her own beliefs, sanctions that may include compulsory participation in ‘remedial ... training,’ filing periodic compliance reports as officials deem necessary, and paying monetary fines.” 600 U.S. at 592. This amounted to a First Amendment violation. The Seventh Circuit’s decision in Backpage.com, LLC v. Dart, illustrates these principles: “A public-official defendant who threatens to employ coercive state power to stifle protected speech violates a plaintiff’s First Amendment rights, regardless of whether the threatened punishment comes in the form of the use (or, misuse) of the defendant’s direct regulatory or decisionmaking authority over the plaintiff, or in some less-direct form.” 807 F.3d 229, 230-31 (7th Cir. 2015). Thus, a sheriff was barred from “using the power of his office to threaten legal sanctions against . . . credit-card companies for facilitating future speech.” Id.; see also, e.g., Okwedy v. Molinari, 333 F.3d 339, 344 (2d Cir. 2003) (per curiam) (holding that a Case: 1:20-cv-04176 Document #: 145-1 Filed: 03/26/25 Page 10 of 14 PageID #:899
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religious group stated a First Amendment claim against a borough president who wrote a letter “contain[ing] an implicit threat of retaliation” against a billboard company displaying the group’s disfavored message).
In sum, the civil enforcement action here, based as it was on protected speech, is prohibited: “At the heart of the First Amendment’s Free Speech Clause is the recognition that viewpoint discrimination is uniquely harmful to a free and democratic society.” National Rifle Ass’n of Am., 602 U.S. at 187. And vindicating this principle, the Supreme Court “has also recognized that no public accommodations law is immune from the demands of the Constitution.” 303 Creative LLC, 600 U.S. at 592.
Yet, the Bureau’s internal view on the First Amendment issues in this case was to brush them aside. Despite observing from the beginning that “the content of [Townstone’s] radio show is overtly political,” investigators declared that it was “not protected” because it was “commercial speech.” Decl. ¶ 15. In so concluding, they relied on two cases from the 1980s, and entirely failed to address four decades of relevant and binding First Amendment precedent that makes clear that the speech here is indeed protected by the First Amendment. Decl. ¶ 15. For example, in Citizens United v. Federal Election Comm’n, 558 U.S. 310, 365 (2010), the Supreme Court held that “[t]he Government may not suppress political speech on the basis of the speaker’s corporate identity.” In Sorrell v. IMS Health Inc., 564 U.S. 552, 579 (2011), the Supreme Court held the government may not suppress truthful commercial speech just because it is controversial or not to the government’s liking. And “[c]ommercial speech is no exception” to the viewpoint-discrimination doctrine. Id. at 566; see also Iancu v. Brunetti, 588 U.S. 388, 393 (2019) (“The government may not discriminate against speech based on the ideas or opinions it conveys.”). In Nat’l Inst. Of Family & Life Advocates v. Becerra, 585 U.S. 755, 768–69 (2018), Case: 1:20-cv-04176 Document #: 145-1 Filed: 03/26/25 Page 11 of 14 PageID #:900
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the Supreme Court rejected an attempt to carve out a lesser-protected category of “professional speech”; the Court explained that to the extent commercial speech receives lesser protection, that category is limited to factual disclosures and regulation of professional conduct incidentally involving speech. Since the speech here is neither factual disclosures nor regulation of professional conduct incidentally involving speech, the speech is fully protected by the First Amendment.
Here, Defendants were subjected to the serious hardship of a lengthy, groundless investigation and then of defending a suit, and ultimately paying a $105,000 fine, where the CFPB targeted them based on the viewpoints of Townstone’s owner, used improper tactics, and did so without disclosing investigators’ motivations. The CFPB supports vacating the consent judgment entered in this action and the stipulated dismissal of all claims in order to permit the agency to return to Townstone the civil penalty it paid.
In light of how the proceedings against Townstone unfolded, the parties respectfully ask the Court to exercise its discretion and to set the judgment aside under Rule 60(b)(6). Allowing this judgment to stand undermines the public’s faith in the system, given the use of governmental powers to persecute citizens for protected activities. It is in the interest of justice to set aside this judgment. Indeed, it is squarely within this Court’s “‘discretion piled on discretion’” to vacate and relieve Townstone from the Final Judgment pursuant to Rule 60(b)(6). Wehrs v. Wells, 688 F.3d 886, 890 (7th Cir. 2012) (quoting Swaim v. Moltan Co., 73 F.3d 711, 722 (7th Cir. 1996)). IV.
CONCLUSION The parties jointly and respectfully ask the Court to vacate and relieve Defendants from the Stipulated Final Judgment and Order, ECF No. 138. Upon this Court’s grant of Rule 60(b)(6) relief, all parties to this action stipulate to the dismissal with prejudice of all claims Case: 1:20-cv-04176 Document #: 145-1 Filed: 03/26/25 Page 12 of 14 PageID #:901
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against Townstone and Mr. Sturner pursuant to Federal Rule of Civil Procedure 41(a)(1)(A)(ii), (B).
Dated: March 26, 2025.
Respectfully submitted,
CONSUMER FINANCIAL
TOWNSTONE FINANCIAL, INC., PROTECTION BUREAU
AND BARRY STURNER /s/ Mark Paoletta
/s/ Steven M. Simpson MARK PAOLETTA (DC Bar # 422746)
STEVEN M. SIMPSON Chief Legal Officer
DC Bar No. 462553 [email protected]
ASHLEY TORKELSON LEVINE Tel: (771) 959-6080
AZ Bar No. 032544 VICTORIA DORFMAN (DC Bar # 487567) Pacific Legal Foundation (NY Bar # 4656625)
3100 Clarendon Boulevard, Suite 1000 [email protected]
Arlington, VA, 22201 DANIEL SHAPIRO
Tel: (202) 888-6881 (FL Bar # 1011108)
[email protected] [email protected]
1700 G Street NW
OLIVER J. DUNFORD Washington, DC 20552
FL Bar No. 017991
Pacific Legal Foundation Attorneys for Plaintiff
4440 PGA Boulevard, Suite 307 Palm Beach Gardens, FL 33410 Tel: (916) 503-9060 [email protected]
SEAN P. BURKE RAY BIEDERMAN Mattingly Burke Cohen & Biederman LLP 155 E. Market St. Suite 400 Indianapolis, IN 46204
MARX DAVID STERBCOW The Sterbcow Law Group LLC 824 Elmwood Park Boulevard, Suite 205 New Orleans, LA 70123
Attorneys for Defendants
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CERTIFICATE OF SERVICE The undersigned hereby certifies that on March 26, 2025, I electronically filed the foregoing document with the Clerk of the Court via the CM/ECF system, which will cause a copy to be served upon counsel of record.
/s/ Mark Paoletta MARK PAOLETTA Case: 1:20-cv-04176 Document #: 145-1 Filed: 03/26/25 Page 14 of 14 PageID #:903
Order ()
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IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION
BUREAU OF CONSUMER FINANCIAL PROTECTION,
Plaintiff,
v.
TOWNSTONE FINANCIAL, INC. and BARRY STURNER,
Defendants.
No. 20-cv-4176 Judge Franklin U. Valderrama
ORDER
The Bureau of Consumer Financial Protection (CFPB) sued Townstone Financial, Inc. (Townstone), a mortgage broker/lender, and its owner Barry Sturner (Sturner) (collectively, Defendants) for allegedly discouraging, via their radio show and podcast, prospective African-American applicants in the Chicago metropolitan area from applying for mortgages, in violation of the Equal Credit Opportunity Act (ECOA), 15 U.S.C. § 1691(a), and its implementing regulation, Regulation B, 12 C.F.R. § 1002.4(b). R. 27, First Amended Complaint (FAC).1 Defendants moved to dismiss the FAC with prejudice, arguing that the ECOA did not extend to prospective applicants, and that they engaged in First Amendment protected speech. R. 31, Mot. Dismiss. The Court granted the motion, finding that the ECOA does not extend to prospective applicants. Bureau of Consumer Fin. Prot. v. Townstone Fin., Inc., 2023 WL 1766484, at *11 (N.D. Ill. Feb. 3, 2023) (Townstone I).
1Citations to the docket are indicated by “R.” followed by the docket number and, where necessary, a page or paragraph citation.
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In light of that finding, the Court did not address Defendants’ First Amendment argument. Id. The Seventh Circuit, however, reversed and remanded the case, concluding that Regulation B’s prohibition on the discouragement of prospective applicants is consistent with the ECOA. Consumer Fin. Prot. Bureau v. Townstone Fin., Inc., 107 F.4th 768, 777 (7th Cir. 2024) (Townstone II). The Seventh Circuit similarly did not address Defendants’ First Amendment argument that they engaged in constitutionally protected speech on their radio show and podcast. Id. Subsequently, the Parties agreed to and moved for entry of a Stipulated Final Judgment and Order, that, among other things, required Townstone to pay a $105,000 fine. R. 135, Mot. Judgment. The Court entered the Stipulated Final Judgment and Order on November 7, 2024. R. 138, Judgment Order. Recently, CFPB and Defendants (collectively, the Parties) filed a Joint Rule 60(b)(6) Motion for Relief and Vacatur of the Stipulated Final Judgment and Order (the Motion). R. 145, Mot. Vacate. Amici Curiae, nonprofit organizations focused on fair housing and consumer protection, filed a brief in opposition to the motion. R. 147- 1, Amici Resp. This fully briefed Motion is before the Court. Background2 The CFPB is an independent agency of the United States, created by the Consumer Financial Protection Act of 2010 (CFPA), with authority to enforce the CFPA and ECOA. FAC ¶ 8. Townstone is a mortgage broker/lender headquartered in Chicago, which operates in Illinois, Indiana, Michigan, Wisconsin, and Florida. Id.
2The Court assumes familiarity with the facts and recites only those facts necessary for resolution of the Motion.
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¶ 9. Sturner, among other things, is Townstone’s President and Chief Executive Officer. Id. ¶ 13.
Starting as early as 2014, Townstone marketed its services through its own radio show and podcast, “The Townstone Financial Show.” Id. ¶ 24. The Townstone Financial Show is a long-form commercial advertisement, in which the hosts discuss mortgage-related issues and take questions from prospective applicants. Id. ¶ 26. The Townstone Financial Show has allegedly included statements that would discourage African-American prospective applicants from applying for mortgage loans from Townstone. Id. ¶ 32.
In 2020, after a three-year investigation during President Trump’s first administration, CFPB sued Defendants alleging that: (1) Townstone violated the ECOA and its implementing regulation, Regulation B (Count I); (2) Townstone violated the CFPA, 12 U.S.C. § 5536(a)(1)(A) (Count II); and (3) Sturner fraudulently transferred assets in violation of 28 U.S.C. §§ 3301–3308. FAC ¶¶ 53–78. Defendants moved to dismiss the FAC on the basis that the ECOA does not regulate behavior relating to prospective applicants who have yet to apply for credit. Mot. Dismiss. Defendants further argued that the speech they engaged in on their radio show was constitutionally protected speech. Id. The Court agreed with the former argument and granted the motion to dismiss. Townstone I, 2023 WL 1766484, at *11. The Court did not address Defendants’ First Amendment argument. Id. The Seventh Circuit reversed and remanded the case, concluding that the ECOA did apply Case: 1:20-cv-04176 Document #: 152 Filed: 06/12/25 Page 3 of 15 PageID #:958
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to prospective applicants for credit. Townstone II, 107 F.4th 768, 777. The Seventh Circuit also declined to address Defendants’ First Amendment argument. Id. Following remand, the Parties agreed to, and moved for entry of a Stipulated Final Judgment and Order, that, among other things, enjoined Townstone from engaging in any acts that violate the ECOA in connection with offering or providing mortgage loans, provided for the implementation and maintenance of policies to test Townstone’s compliance with the ECOA, and required Townstone to pay a fine of $105,000 to CFPB and to commit to various programmatic changes for a period of five years, during which time the Court retained jurisdiction. Mot. Judgment. The Court entered the Stipulated Final Judgment and Order3 on November 7, 2024. Judgment Order.
On January 20, 2025, Donald J. Trump was inaugurated President of the United States for a second term. On the same day, President Trump ordered agency heads to “identify and take appropriate action to correct past misconduct by the Federal Government related to censorship of [constitutionally] protected speech” and “to review the activities of . . . agencies exercising civil and criminal enforcement authority . . . and identify any instances” reflecting improper targeting of enforcement actions “oriented more toward inflicting political pain than toward pursuing actual justice or legitimate governmental objectives.” Exec. Order No. 14149 § 2(d), 90 Fed. Reg. 8,243 (Jan. 20, 2025); Exec. Order 14147 §§ 1, 3, 90 Fed. Reg. 8,235 (Jan. 20, 2025).
3Pursuant to the Stipulation, the parties stipulated to the dismissal of Sturner. Case: 1:20-cv-04176 Document #: 152 Filed: 06/12/25 Page 4 of 15 PageID #:959
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CFPB’s new leadership, pursuant to the Executive Order, undertook a review of agency records concerning recent enforcement actions, including this case. CFPB maintains that it discovered that it commenced this action without a substantial predicate of actionable facts and targeted Defendants based on constitutionally protected speech. The Parties then filed a Joint Rule 60(b)(6) Motion for Relief from and Vacatur of the Stipulated Final Judgment and Order. Mot. Vacate. Amici, fourteen nonprofit organizations focused on fair housing and consumer protection sought leave to file, pursuant to Local Rule 5.6, a brief in opposition since no other party before the Court opposed the Motion.4 R. 147. The Court granted the motion, and Amici filed a brief in opposition to the Motion. Amici Resp. The Parties’ fully briefed Motion is before the Court.
Legal Standard Federal Rule of Civil Procedure 60(b) allows a court to grant relief to a party from a final judgment or order for several listed reasons. Fed. R. Civ. P. 60(b). Rule 60(b)(6) contains a catchall provision providing a remedy for “any other reason that justifies relief.” Fed. R. Civ. P. 60(b)(6).
The two rules are mutually exclusive—Rule 60(b)(6), as a residual catchall, applies only if the other specifically enumerated rules do not. BLOM Bank SAL v. Honickman, 605 U.S. ---, 2025 WL 1583305, at *4 (U.S. June 5, 2025); Pearson v. Target Corp., 893 F.3d 980, 984 (7th Cir. 2018). Rule 60(b)(6) is reserved for cases that present “extraordinary circumstances.” BLOM Bank SAL, 2025 WL 1583305, at
4While Defendants opposed the motion, CFPB did not take a position. Case: 1:20-cv-04176 Document #: 152 Filed: 06/12/25 Page 5 of 15 PageID #:960
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*5 (collecting cases). “Rule 60(b)(6) is fundamentally equitable in nature.” Ramirez v. United States, 799 F.3d 845, 851 (7th Cir. 2015) “The movant seeking relief under Rule 60(b)(6) must show extraordinary circumstances justifying the reopening of a final judgment.” Id. at 850.
Courts may consider a wide range of factors in determining whether such circumstances exist, including the risk of injustice to the parties and the risk of undermining the public’s confidence in the judicial process. Buck v. Davis, 580 U.S. 100, 103 (2017). That said, “[t]he need for the finality of judgments is an overarching concern.” Cincinnati Ins. Co. v. Flanders Elec. Motor Serv., 131 F.3d 625, 628 (7th Cir. 1997). As the Seventh Circuit explained, “Rule 60(b) sets a higher value on the social interest in the finality of litigation.” Id. (cleaned up).5 The Supreme Court recently reaffirmed this principle, holding that the “very strict interpretation of Rule 60(b),” that is, applying it in only extraordinary circumstances, “is essential if the finality of judgments is to be preserved.” BLOM Bank SAL, 2025 WL 1583305, at *5 (cleaned up).
Whether to grant a Rule 60(b)(6) motion is left to the discretion of the court. See Bakery Mach. & Fabrication, Inc. v. Traditional Baking, Inc., 570 F.3d 845, 848 (7th Cir. 2009) (“The district court has great latitude in making a Rule 60(b) decision because that decision “is discretion piled on discretion.” (cleaned up)). It is with this framework in mind that the Court analyzes the Parties’ Motion.
5This Opinion uses (cleaned up) to indicate that internal quotation marks, alterations, and citations have been omitted from quotations. See Jack Metzler, Cleaning Up Quotations, 18 Journal of Appellate Practice and Process 143 (2017). Case: 1:20-cv-04176 Document #: 152 Filed: 06/12/25 Page 6 of 15 PageID #:961
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Analysis As a preliminary matter, the Parties argue that since the Motion is a joint motion, the requirements of Rule 60(b)(6) are relaxed. R. 145-1, Memo. Vacate at 3 (citing Cummins v. Illinois, 2010 WL 334514, at *2 (S.D. Ill. Jan. 25, 2010); Marcus A.T. v. Comm’r of Soc. Sec., 2023 WL 3304727, at *2 (S.D. Ill. May 8, 2023); Mayes v. City of Hammond Ind., 631 F. Supp. 2d 1082, 1088 (N.D. Ind. 2008)). As for the consent decree, Rule 60(b)(6), from the Parties’ perspective, offers an even more flexible standard, which allows a court to adjust its final judgment, so as to harmonize it with changed circumstances in law or fact. Id. at 4 (citing Rufo v. Inmates of Suffolk Cnty. Jail, 502 U.S. 367, 380, 393 (1992); O’Sullivan v. City of Chicago, 396 F.3d 843, 866 (7th Cir. 2005)). Therefore, reason the Parties, the Court may consider the parties’ mutual interest. Id.
Amici counter that Parties’ contention that Rule 60(b)(6)’s “extraordinary circumstance” standard should be relaxed in this case fails because the cases cited by the Parties in support of this proposition are all distinguishable, as they “arose in the context of parties entering into a settlement during the pendency of an appeal . . . .” Amici Resp. at 6. That is far from the case here, note Amici, as the Parties do not seek to vacate this Court’s order to enable a settlement, but instead to undo a settlement. Id.
In reply, the Parties argue that nothing in the cases cited suggest that the standards under Rule 60(b)(6) can only be relaxed when two parties agree to settle on appeal. R. 151, Reply at 4. Here, submit the Parties, the judgment to be vacated is Case: 1:20-cv-04176 Document #: 152 Filed: 06/12/25 Page 7 of 15 PageID #:962
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not a merits decision by the Court, but rather, the result of a prior settlement between the two parties seeking vacatur. Id. at 5. Vacatur, posit the Parties, will not affect precedent, as the Seventh Circuit’s decision remains; will not affect preclusion, as the judgment adjudicated no issues of fact or law; and will not waste judicial resources, as the settlement occurred soon after the Seventh Circuit’s remand. Id. at 5. Nor does vacatur affect the interests of private parties, beyond Townstone, because the settlement contained no terms that benefitted private parties. Id. at 6. The Court agrees with the Parties that the fact that they have not cited any similar case—involving a joint Rule 60(b)(6) motion to undo, rather than facilitate, a settlement—on its own, does not undermine the fact that courts have relaxed Rule 60(b)(6)’s requirement where the motion to vacate is a joint motion.6 To be sure, the facts of the Motion are unusual and the Motion, therefore, unprecedented (as far as the Court can tell based on the materials before it). As correctly noted by the Parties, Rule 60(b)(6) is equitable in nature and courts focus on justice and equities and in doing so, consider the totality of the circumstances. Memo. Vacate at 3–4. Here, the Court must balance the parties’ desire to vacate the judgment with the public interest in the finality of judgments. What distinguishes this case from the cases cited by the Parties, among other reasons, is the fact that Defendants’ alleged
6Whether courts should continue doing so on joint motions is debatable, in light of the Supreme Court’s recent decision, in which it held that a “very strict interpretation of Rule 60(b),” that is, only applying it in extraordinary circumstances, “is essential if the finality of judgments is to be preserved.” BLOM Bank SAL, 2025 WL 1583305, at *5. Blom Bank SAL did not involve a joint request, and the Court need not definitively determine whether it impacts the analysis, as the Court declines to relax 60(b)(6)’s requirement for the reasons discussed above.
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wrongdoing affected the public. This was not a private matter between private parties. CFPB’s complaint alleged that Defendants discouraged prospective African- American applicants in the Chicago metropolitan area from applying for mortgage loans. Indeed, the consent decree enjoined Townstone from engaging in the allegedly improper practices.
Under these circumstances, the Court finds that relaxing Rule 60(b)(6)’s requirement would be improper. Supreme Court and Seventh Circuit precedent is clear: the movant seeking Rule 60(b)(6) relief “must show extraordinary circumstance justifying the reopening of a final judgment.” Ramirez, 799 F.3d at 850; BLOM Bank SAL, 2025 WL 1583305, at *5. With that hurdle cleared, the Court turns to the substance of the Parties’ arguments.
The Parties argue that the Court should vacate the judgment in the interest of justice. Memo. Vacate at 4. The Parties contend that once new leadership reviewed the history of the case, “it became clear from the totality of internal evidence that this case has suffered from deficiencies on the merits and Townstone was targeted because of its protected speech.” Id. In support, the Parties submit the Declaration of Dan Bishop, a Senior Advisor to the Office of Management and Budget detailed part time to CFPB. R. 145-2, Bishop Decl. ¶ 2.
Remarkably, CFPB maintains that it launched this lawsuit “without substantial evidence of discrimination and based on the expressed political views of Mr. Sturner, Townstone’s principal.” Memo. Vacate at 4–5 (citing Biship Decl. ¶ 5). CFPB posits that, had Defendants “been able to access the internal agency records Case: 1:20-cv-04176 Document #: 152 Filed: 06/12/25 Page 9 of 15 PageID #:964
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demonstrating that the Bureau failed to wrestle with the deficiencies in this case and that [they were] targeted, [they] would have been able to advance a more strongly supported First Amendment, viewpoint-based targeting defense against the Bureau.” Id. at 5.
The Parties point out that Defendants sought such discovery but were rebuffed by the Magistrate Judge. Memo. Vacate at 5. The Parties assert that CFPB used a “variety of undisclosed tactics to gain access” to Defendants’ statements on which the CFPB predicated the ECOA enforcement action. Id. at 6. At bottom, from CFPB’s new leadership’s point of view, the civil enforcement action undertaken by the previous CFPB leadership was based on protected speech, and therefore, improper. Id. at 10. Amici respond that the Parties’ motion fails to clear the high bar set by Rule 60(b)(6) of “extraordinary circumstances.” From Amici’s perspective, the Parties seek to “unwind the final judgment because the new leadership at the CFPB regrets that the previous Trump administration filed the case, suggesting that Townstone was improperly targeted based on its ‘viewpoints.’” Amici Resp. at 7. Amici raise concerns with the Bishop declaration in which he states that CFPB lawyers misled their superiors, specifically suggesting that former CFPB Director Krainger “may have made her decision to litigate based on incomplete or inaccurate information.” Id. at 7–8 (citing Bishop Decl. ¶ 7). This missing or omitted information, posit Amici, was merely the exclusion of irrelevant case law outside of Regulation B. Id. at 8 (citing Bishop Dec. ¶ 12). As for the “undisclosed tactics,” that was nothing more than the “use of a software program that automated the process of searching Case: 1:20-cv-04176 Document #: 152 Filed: 06/12/25 Page 10 of 15 PageID #:965
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hours of publicly available audio programming for key terms.” Id. Such use, submit Amici, was an efficient use of government resources. Id. Regarding discovery not disclosed, there is no support for the proposition that “the target of a government investigation is entitled to work-product information while litigation is being contemplated or is underway.” Id. As for the Parties’ argument that Defendants’ statements were protected First Amendment speech, the issue fully was litigated, but not addressed by any court, but rather than litigating the issue on remand, the Parties resolved the case through a stipulated final judgment. Amici Resp. at 10. Rule 60(b)(6), according to Amici, does not afford CFPB an opportunity to revisit this issue. Id.
Next, Amici advance a public policy argument. Amici point out that the Parties “cite no case in which a court vacated a final judgment and ordered return of civil penalties under Rule 60(b) because new agency leadership disagreed with the litigation choices made by their predecessors.” Amici Resp. at 10. And this Court should not be the first to do so. Id. Amici posit that if the Court granted the motion, it would incentivize private parties “to view every new administration as an opportunity for renegotiation of completed litigation.” Id. at 11. Defendants who have entered into consent decrees with government agencies would seek to undo those decrees merely based on a new administration, presumably, one whose viewpoints align with the defendants. Id.
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Lastly, Amici contend that since Townstone seeks the return of a $105,000 civil penalty, such a precedent “raises the specter that payments made to third parties as part of consent decrees may also be clawed back.” Amici Resp. at 11. In reply, the Parties insist that the “extraordinary circumstances” of this case warrant vacatur. Reply at 3. The Parties challenge Amici’s contention that the Parties filed the Motion because of a change in CFPB’s leadership. Rather, maintain the Parties, they filed the motion because CFPB “discovered that the Townstone case lacked any evidence of actual discrimination, lacked any actual consumers who complained about anything Townstone did, and was both brought and pursued because CFPB disliked Townstone’s speech . . . .” Reply at 3–4. Having considered the arguments presented, the issue before the Court is whether the Parties have met their substantial burden of showing an extraordinary circumstance that justifies vacatur of the final judgment and consent decree. The Court finds they have not.
Notably, the Motion, as observed by Amici, is unprecedented. The Parties in this case—a government agency and private parties—voluntarily entered into a settlement and consent decree to resolve the dispute. As previously noted, the consent decree, among other things, enjoined Townstone from engaging in any acts that violate the ECOA in connection with offering or providing mortgage loans. The voluntary nature of the resolution of this case cannot be overemphasized. It was only after a change at the leadership at CFPB that CFPB now seeks—along with Defendants—to unwind the very settlement and consent decree that it negotiated. Case: 1:20-cv-04176 Document #: 152 Filed: 06/12/25 Page 12 of 15 PageID #:967
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Contra BLOM Bank SAL, 2025 WL 1583305, at *5 (quoting Ackermann v. United States, 340 U.S. 193, 198 (1950) (explaining “[t]here must be an end to litigation someday, and free, calculated, deliberate choices are not to be relieved from.”)). The Parties insist that CFPB made the decision to file the Motion not because of change in leadership, but rather because it “discovered that the Townstone case lacked any evidence of actual discrimination, lacked any actual consumers who complained about anything Townstone did, and was both brought and pursued because CFPB disliked Townstone’s speech . . . .” Reply at 3–4. This assertion, while breathtaking, is unpersuasive.
Recall that the investigation and initiation of the lawsuit occurred during President Trump’s first term, not under some previous administration. Presumably, CFPB launched the lawsuit after it determined that there was a legal and factual basis for the suit. Apparently, that was not the case. Now, current CFPB leadership under the second Trump administration, in an act of legal hara-kiri that would make a samurai blush, falls on the proverbial sword and attests that the lawsuit lacked a legal or factual basis.7 That’s not all, as current CFPB leadership lambasts CFPB leadership under the first administration for trampling Defendants’ First Amendment rights.
7CFPB’s argument implicates the specter of Federal Rule of Civil Procedure 11, as CFPB contends that it filed this lawsuit without a factual or legal basis. Fed. R. Civ. P. 11(b). While Amici did not raise Rule 11, the Court has inherent authority to impose sanctions for violations of the Rule. Since the Court is denying the motion, it need not determine whether CFPB violated Rule 11.
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True, it is impermissible for government agencies to target people or entities because of protected speech. And nothing in this Order suggests anything to the contrary. However, neither this Court nor the Seventh Circuit addressed Defendants’ First Amendment argument. Therefore, that issue was not adjudicated. At bottom, to grant the Motion based on the arguments advanced by the Parties would be to undermine the finality of judgments. This, the Court declines to do. Indeed, the importance of preserving finality was illustrated by the Supreme Court just a few days ago, when it reaffirmed that it is “essential” to apply a strict standard to Rule 60(b) motions to preserve the finality of judgments. BLOM Bank SAL, 2025 WL 1583305, at *5.
Moreover, the Court agrees with Amici that granting the Motion would erode public confidence in the finality of judgments. It would set a precedent suggesting that a new administration could seek to vacate or otherwise nullify the voluntary resolution of a case between a prior administration (or the same administration ,but under different agency leadership) and a private party merely because its leadership thought the original litigation unwise or improperly motivated. That is a Pandora’s box the Court refuses to open.
All in all, balancing the benefits vacatur against the public interest in the finality of judgment, the Court finds that the latter outweighs the former. Conclusion
For the foregoing reasons, the Court denies the Parties’ Joint Rule 60(b)(6) Motion for Relief and Vacatur of the Stipulated Final Judgment and Order [145]. The Case: 1:20-cv-04176 Document #: 152 Filed: 06/12/25 Page 14 of 15 PageID #:969
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stipulated final judgment and order [138] remains in effect and this civil case remains terminated.
Dated: June 12, 2025
____________________________________ United States District Judge Franklin U. Valderrama
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