Won: The district court dismissed CFPB’s case against Townstone, concluding that CFPB lacked authority to adopt Regulation B, the provision it claims Townstone violated. CFPB's appeal to the Seventh Circuit is pending.

Barry Sturner is a long-time Chicagoan who loves the Windy City and wants to see it thrive. He sees the work of his small mortgage brokerage, Townstone Financial, Inc., as lifting up both the city and its residents through home ownership.

The federal Consumer Financial Protection Bureau (CFPB) views Barry and his business in a much more troubling manner: through the lens of race. As part of an effort to combat “systemic racism,” the agency is using powers it doesn’t have to prosecute firms like Townstone. Targeted companies find themselves forced into a choice between caving to the agency’s demands or betting the company on a lawsuit to fight back.

In 2020, the CFPB filed a federal lawsuit against Townstone claiming that the company violated a fair lending law by discriminating against African Americans. To most people, a charge like that conjures images of mortgage applicants turned away because of their race.

But that’s not what the CFPB claims. The agency points to no actual people with whom Townstone refused to do business or who even complained about Townstone.

Instead, the CFPB claims that a handful of comments Townstone employees made on a radio show over a four-year period “would discourage” people from minority neighborhoods from applying for loans.

In 2011, Barry Sturner’s then-partner launched a financial advice show on AM talk radio in Chicago. The weekly one-hour show—dubbed The Townstone Financial Show—covered issues of interest to homebuyers, featured housing industry experts, and offered advice to listeners and callers. It also often meandered into topics such as crime, policing, sports, movies, and more.

But racism? According to the CFPB, the answer is “Yes.”

“Since at least 2014,” alleges the CFPB, “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 Chicago. The CFPB alleges:

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 women of a predominantly African American area; and their home-selling advice has included recommendations regarding displays of the Confederate flag.

These claims may sound serious, but when examined in context, they fall apart. In fact, nothing in the statements (or anything else the CFPB has identified) disparaged anyone based on their race.

– Like every Chicagoan, Barry Sturner is concerned about crime. He joins the former mayor, among many others, in describing the South Side as a “war zone” and using the term “hoodlum” in discussions of crime. It is also true that some high-crime areas in Chicago are majority African American. But juxtaposing these facts does not turn a discussion of crime into a series of disparaging comments about African American neighborhoods. [Listen to the clip.]

– In a similar vein, one of the hosts compared the adrenaline rush of walking through the South Side of Chicago late at night to skydiving. [Listen to the clip.]

– Likewise, the allegedly disparaging comment about African American women was a joke about wives spending too much money in a discussion about how to improve credit scores. A lunk-headed effort at humor, perhaps, but not a commentary on African American women. [Listen to the clip.]

– The “jungle” statement pertained to a Jewel-Osco grocery store in Chicago widely known as the “Jungle Jewel.” (One Chicago blogger referred to the “famed Jungle Jewel” as a “socio-economic nightmare.”) Barry mentioned the store to emphasize why it makes sense to buy homes in up-and-coming neighborhoods. His point was that the neighborhood in question, where he once lived, previously had only one grocery store—the Jungle Jewel—but today has many. It was therefore a good place to invest. [Listen to the clip.]

– And one commentator on the show did make a “recommendation regarding displays of the Confederate flag.” But contrary to the CFPB’s insinuation, the recommendation, said in jest, was “take down the Confederate flag” if you are trying to sell your home. [Listen to the clip.]

These were a handful of statements over a four-year period. They accounted for, at most, 10 minutes of air-time out of about 10,000 minutes during that period. The CFPB claims otherwise only by ignoring the context of the conversations and ascribing the worst possible motives to Townstone.

Could any of Townstone’s statements offend someone? Perhaps. In today’s world, almost anything can offend someone. And Barry Sturner is an outspoken conservative, an unabashed supporter of Trump and the police, and a frequent critic of Elizabeth Warren, the architect of the CFPB. No doubt some of his listeners were annoyed by his views—especially at a time when crime, policing, and Trump were hot-button issues in America.

But speaking about controversial topics is not illegal—even for mortgage companies. Unfortunately, the CFPB is armed with some vague laws and regulations that the agency claims allow it to decide what creditors are, and are not, allowed to say.

The CFPB contends that Townstone violated the Equal Credit Opportunity Act and an agency regulation known as Regulation B. The ECOA makes it illegal for mortgage lenders to discriminate against any applicant for credit on the basis of race. Regulation B seeks to extend that ban to any statements that would “discourage on a prohibited basis” a “prospective applicant” from applying for credit.

Townstone has not discriminated against anyone, and the CFPB has not alleged that it has. Instead, the CFPB contends that Townstone’s radio statements “would discourage” prospective applicants from seeking credit. Who are these “prospective applicants”? According to the CFPB, anyone who may have heard Townstone’s radio show and may have been “discouraged” from applying for a loan. But no one has complained to Townstone, and the CFPB has named no prospective applicants who were discouraged from applying.

Instead, the CFPB claims that Townstone must have discouraged prospective applicants because Townstone allegedly hasn’t received enough applications from, or made enough loans to, African Americans, it hasn’t targeted its advertising to African Americans, and it has no African American loan officers.

But the ECOA does not require mortgage companies to make loans or advertising or hiring decisions on the basis of race. And it would violate the equal protection clause of the Constitution if it did, as government is not permitted to discriminate (or require discrimination) based on race.

The CFPB’s case against Townstone illustrates the vast, arbitrary power administrative agencies have over the businesses and individuals they regulate. The ECOA bans discrimination against applicants. Armed with the power to issue regulations and file lawsuits, the CFPB has expanded the law to apply to statements that might offend any radio listener in Chicago. If a mortgage company disagrees with the CFPB’s interpretation of the ECOA, its only options are to settle or bet the company in a lawsuit that will cost millions. No wonder that when faced with similar suits, most businesses—certainly small businesses like Townstone—choose to settle.

Barry Sturner chose to fight back. And with Pacific Legal Foundation’s help, he can.

This case is about much more than freedom of speech. When regulatory agencies unilaterally expand liability through expansive regulation and creative legal theories, they are making law. But under our Constitution’s separation of powers, that is Congress’ job. The CFPB’s case is part of an effort, heavily pushed by the Biden administration, to root out “structural” or “systemic” racism in American society. Whether racism is baked into American law and society is a debate worth having. But that debate won’t happen if the CFPB is able to foist its views on others through the force of law.

At PLF, we believe that, while America certainly has its problems with race, it is not fundamentally a racist society. The irony of this case is that, if the CFPB gets its way, ultimately racism will become baked into American law.

Joining PLF on this case are Sean Burke of Mattingly Burke Cohen and Biederman LLP, Marx Sterbcow of the Sterbcow Law Group LLC, and Rich Horn of Garris Horn LLP.

On February 3, 2022, the district court dismissed CFPB’s case against Townstone, concluding that the CFPB lacked authority to adopt Regulation B, the provision it claims Townstone violated. On April 3, 2023, the CFPB appealed that decision to the United States Court of Appeals for the Seventh Circuit.

What’s At Stake?

  • The CFPB is pursuing a radical racial equity agenda at the expense of separation of powers and freedom of speech.
  • Government agencies can neither claim power they’re not authorized to have, nor abuse their authority to inject social agendas into the business practices of an entire industry. Doing so runs roughshod over constitutional protections for speech and the economic liberty of legitimate businesses.

Case Timeline

July 11, 2024
United States Court of Appeals for the Seventh Circuit
August 14, 2023
Opening Brief
United States Court of Appeals for the Seventh Circuit
February 03, 2023
November 20, 2020