Barry Sturner is like most Chicagoans: He loves the Cubs, the Blackhawks and a Chicago-style hot dog. Sturner started a small mortgage company, Townstone Financial, to help his neighbors achieve their dream of owning a home.
Townstone primarily markets its services through radio ads and a weekly infotainment show. The shows were broadcast throughout the Chicagoland area, extending into neighboring states when the signal was clear.
Enter the Consumer Financial Protection Bureau (CFPB). In 2020, following a three-year investigation, the CFPB sued Townstone for allegedly violating the Equal Credit Opportunity Act (ECOA), which prohibits discrimination against credit applicants on the basis of prohibited characteristics, including race. To Townstone’s surprise, the CFPB accused the company of racial redlining — of refusing to lend to African Americans.
But Townstone never discriminated against any applicants for credit — and the CFPB didn’t allege it had. Instead, the CFPB claimed Townstone violated an agency regulation, known as Regulation B, that bars creditors from making statements that “would discourage … prospective applicants” from seeking credit.
Although Townstone never received complaints about its radio show, the CFPB plucked five innocuous statements about crime and life in Chicago out of hundreds of hours of radio broadcasts to allege that Townstone intended to discourage African Americans from seeking credit. Never mind that Townstone made loans to African Americans and in majority-minority census tracts, it wasn’t as successful in drawing applicants as some banks and larger mortgage companies. The CFPB alleged that this lack of success constituted evidence of redlining, even though there were no legal requirements for Townstone to reach parity with its competitors.
At this point, Sturner and Townstone were faced with a Hobson’s choice: settle the case — implicitly admitting liability — and pay stiff penalties or mount a legal fight against a government agency with an unlimited budget, risking the company and his reputation in the process. What business owner wouldn’t blanche given this choice? And while most people would opt to take the available option and give in to the CFPB’s demands, Sturner decided to take the road less traveled and fight.
It wouldn’t be an easy fight — far from it. Charges of racism or redlining are among the worst allegations that can be levied against a person or business.
But he did fight. And nearly six years after the CFPB kicked off the saga, a federal judge dismissed the case on Feb. 3. The court ruled that the ECOA prohibits discrimination against applicants for credit, not the discouragement of prospective applicants, as the CFPB had claimed. In short, the CFPB overreached and lacked statutory authority to bring a lawsuit against Townstone.
The district court’s decision represents a significant win for the separation of powers. Under the U.S. Constitution, Congress makes the law — not administrative agencies. The judiciary must interpret the laws and guard against one branch encroaching on the constitutional role of another branch.
When agencies staffed by unelected officials can make law, they can turn a law banning discrimination into one that requires creditors to lend and make other business decisions based on race. Whether an agency tries to rewrite the law through regulations or litigation, it subverts the rule of law and our Constitution.
The CFPB’s interpretation of Regulation B turned the ECOA on its head. While Congress passed the ECOA to prevent discrimination against a protected class, the CFPB alleged Townstone violated the law by speaking about public issues protected by the First Amendment and failing to meet an unknown racial quota. In short, it’s no longer enough not to discriminate — the CFPB wanted to require creditors such as Townstone to lend money based on race.
The court did not address the factual allegations against Townstone in its decision, given the early stage of litigation when the decision was entered. Unfortunately, Townstone’s reputation had suffered the injury. Townstone maintains it never intended to discourage anyone from seeking credit; the radio show was to encourage people to contact Townstone. In context, the statements in the CFPB’s complaint were made in conversations encouraging people to invest in real estate.
In this case, the CFPB tried to turn a statute that prohibits discrimination into one that requires it — one where actual discrimination need not be proved, or even alleged, to brand someone a racist and drag them into federal court. Thankfully, one court has slapped down this overreach. But questions remain: Will the CFPB learn a lesson? And how can Barry Sturner and Townstone Financial restore their reputation?
This op-ed was originally published at The Hill on February 20, 2023.