District Court rebukes CFPB’s attempt to expand regulatory powers over small business

Chicago; February 3, 2023: Today, a federal court dismissed the Consumer Financial Protection Bureau’s lawsuit against Townstone Financial, Inc, a small mortgage broker in Chicago. CFPB alleged in the case that Townstone had violated the Equal Credit Opportunity Act (ECOA) by making a handful of statements on a weekly radio show that CFPB claimed “would discourage” a “reasonable person” from seeking credit. The statements, however, were part of innocuous discussions about crime and homebuying in Chicago that CFPB took completely out of context.

The court recognized that CFPB’s allegations had no basis in ECOA, which bars “discrimination” against “applicants for credit.” Townstone never discriminated against anyone — let alone applicants for credit — and CFPB never identified anyone who even complained about anything Townstone said on its radio show. But CFPB sued Townstone anyway, arguing that a rule known as “Regulation B” allows CFPB to bar statements made to “prospective applicants” that “would discourage” a “reasonable person” from seeking credit.

“The CFPB’s authority to enact regulations is not limitless,” stated the court in today’s decision. “The plain text of the ECOA … clearly and unambiguously prohibits discrimination against applicants, which the ECOA clearly and unambiguously defines as a person who applies to a creditor for credit.” (Emphasis added). Because “Congress has directly and unambiguously spoken on the issue at hand and only prohibits discrimination against applicants,” the court held that CFPB’s case against Townstone was legally baseless.

“The court’s decision today is a ringing endorsement of the Constitution’s separation of powers,” said Steve Simpson, an attorney at Pacific Legal Foundation. “Congress makes the law; agencies enforce it. No agency — CFPB included — is empowered to rewrite a law prohibiting discrimination against credit applicants into one that attempts to prohibit non-discriminatory conduct and speech.”

“Townstone does not discriminate, and no one has ever complained about anything Townstone said on its radio show,” said Barry Sturner, president and CEO of Townstone Financial. “I am gratified that the court understood that CFPB’s complaint against Townstone Financial was legally baseless. Unfortunately, we had to spend years fighting CFPB over a case that should never have been brought. Hopefully, the court’s decision will prevent others from having to endure what we have.”

The CFPB’s lawsuit against Townstone was never an effort to fight discrimination; it was an effort to expand agency authority. The court rejected CFPB’s attempt to expand ECOA from a statute that prohibits discrimination against applicants for credit to one that gives it free rein to regulate creditors’ behavior toward whomever the bureau determines is a “prospective applicant” under Regulation B. Congress never authorized this rewrite of ECOA and, even if it had, it would blatantly violate the First Amendment. 

The credit for this big win goes to teamwork — the broad range of legal talent who came together across several firms, each bringing a specific area of expertise to this case. Collectively, they served up a defense so constitutionally sound that the government simply could not match it, much less win.

“It is a great day for small businesses in America and a great day for the rule of law, said Sean Burke of Mattingly Burke Cohen & Biederman LLP. “For five years, the bureau pursued a small mortgage company using a strained interpretation of ECOA. This was a classic example of governmental overreach. We are grateful that our clients, Townstone and Barry Sturner, stood up to the bureau and the court for its thorough analysis and appropriately limiting the bureau’s jurisdiction.”

Richard Horn of Garris Horn LLP added, “Our argument that agencies are limited to the words and boundaries of their statutes prevailed, which the CFPB and countless other federal agencies have forgotten. This is a win not just against CFPB overreach in redlining cases, but against an administrative state that believes it has limitless authority.”

“Where do Townstone and Barry Sturner go to get their reputations back?” said Marx D. Sterbcow of Sterbcow Law Group. “CFPB has spent years accusing them of racial discrimination for making innocuous statements on a radio show that would never discourage anyone from seeking credit. This case was baseless and should never have been filed.”

The case is CFPB v. Townstone Financial, Inc. and Barry Sturner.