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The Trump administration’s attempt to undo a settlement in a fair lending case that the government reached with a Chicago mortgage broker just days before the November election is an “unprecedented” request that would establish a “dangerous and destabilizing precedent” if granted, according to fair housing and consumer protection groups opposing the move in court.
Under new leadership since the election, the Consumer Financial Protection Bureau has dropped at least nine pending consumer lawsuits, and the Trump administration is also embroiled in a court battle over its plans to fire all but 200 of the consumer watchdog’s 1,700 employees and hand many of its duties back to states.
But in seeking to vacate a settlement it reached with Townstone Financial Inc. and its owner, Barry Sturner, last year, the CFPB’s new leadership has taken the remarkable step of trying to undo an enforcement action the bureau achieved after more than four years of litigation.
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The motivation for undoing the settlement is not new information about the law or facts, as the CFPB claims, but boils down to a policy disagreement, 14 nonprofit fair housing and consumer protection groups alleged in an April 4 amicus brief opposing the move.
The “unprecedented relief” sought by the CFPB “would invite a host of similar docket clogging motions at the beginning of each new presidential administration, undermining public confidence in the finality of judicial orders and wasting the courts’ and agencies’ time rehashing old cases instead of addressing current controversies,” the groups said. “The parties point to no other case where a court anywhere in the country vacated a final judgment because incoming agency leadership disagreed with the decision to litigate the case leading to that judgment.”
The groups — including the National Fair Housing Alliance, the American Civil Liberties Union, the Consumer Federation of America and the National Consumer Law Center — were granted standing to file the amicus brief after the CFPB essentially switched sides in the case against Townstone.
Case filed during Trump’s first term
The CFPB sued Townstone in July 2020 — the final year of the first Trump administration, when the bureau was led by Trump appointee Kathy Kraninger.
Townstone was accused of broadcasting statements on an AM radio show and podcast that effectively discouraged Black residents from applying for loans.
In a 2016 episode, for example, Sturner allegedly said that between Friday and Monday, it’s “hoodlum weekend” on the South Side of Chicago, and that police are “the only ones between that turning into a real war zone and keeping it where it’s kind of at.”
The CFPB alleged that Black applicants accounted for only 1.4 percent of the 2,700 mortgage requests fielded by the mortgage broker in the Chicago market from 2014 to 2017, compared to 9.8 percent of applications taken by its competitors.
After more than four years of litigation, Townstone settled the case in November, agreeing to pay a $105,000 fine without admitting to or denying the allegations against it.
The proposed settlement was submitted for court approval on Nov. 1 — four days before the 2024 presidential election — and approved by the court on Nov. 7, two days after Trump was elected to a second term.
After Townstone paid the fine, the CFPB and attorneys for Townstone filed a motion to vacate the judgment, seeking not only a refund for Townstone but to revoke requirements that the company (or its successors) implement additional policies, procedures, education and training of employees to prevent discrimination for five years.
In their March 26 motion to vacate the settlement, attorneys for the CFPB claimed they’d uncovered evidence that Townstone was targeted “based on the political views of its owner,” and that that CFPB lawyers “misled their superior” — suggesting that Kraninger may have decided to proceed with the case based on incomplete or inaccurate information.
The CFPB also found fault with its investigators’ use of audio mining software to search Townstone’s radio show and podcasts, identifying 16 minutes out of nearly 79 hours of radio content that formed the heart of the case.
“CFPB abused its power, used radical ‘equity’ arguments to tag Townstone as racist with zero evidence, and spent years persecuting and extorting them – all to further the goal of mandating DEI in lending via their regulation by enforcement tactics,” CFPB Acting Director Russ Vought said in a March 26 press release.
But searching hours of publicly available audio programming for key terms is “certainly a more efficient use of government resources than having investigators listen to every episode in real time,” fair housing and consumer protection groups said in opposing the CFPB’s motion to vacate the settlement.
The information that CFPB lawyers were accused of omitting from a memo to Kraninger concerned case law that the attorneys may not have considered relevant, the groups said.
No ruling on First Amendment issues
While the CFPB maintained that the speech in question was not protected by the First Amendment because it was advertising, neither the trial court nor the appeals court weighed in on the First Amendment issues in the case.
Not in dispute is that Townstone employees made six “racially charged statements,” and that the case weighed on whether any or all of them would have discouraged a “reasonable [Black] person from making or pursuing” a mortgage loan, the consumer groups said in their amicus brief.
There are only six circumstances in which courts can undo a final judgement, the groups said, including “a mistake,” “newly discovered evidence,” and “fraud … misrepresentation, or misconduct.”
The CFPB is seeking to overturn the judgment under a catch-all provision, they said: “Any other reason that justifies relief.”
In an April 15 response, lawyers for the CFPB and Townstone said the bureau moved to vacate the settlement “not because of a change in leadership, but 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.”
Vacating the settlement “will not open the floodgates to other efforts to vacate cases, unless those other efforts involve cases, such as this one, in which agencies have used baseless lawsuits to target individuals because of their speech,” CFPB lawyers said.
“Boiled down to its essence, CFPB’s case turned on an alleged statistical disparity in minority mortgage applications between Townstone and unknown (and unrevealed) ‘peer lenders’ and six statements that represented a mere 16 minutes out of 78 hours of total programming from Townstone’s radio show,” the CFPB now maintains.
“As the parties pointed out in their opening brief, a mere statistical disparity in applications is not actionable” under the Equal Credit Opportunity Act, CFPB lawyers said.
“The entire case was built on speech that CFPB lawyers did not like,” the CFPB now says. “That speech was not bigoted — it was, at worst, offensive.”
Even if it were, bigotry “is actionable only if it results in injury to a plaintiff; there must be a real link between the bigotry and an adverse … action,” CFPB attorneys said, citing a 2003 ruling by the Seventh Circuit Court of Appeals in Adams v. Wal-Mart Stores Inc.
At an April 8 hearing, U.S. District Court Judge Franklin Valderrama said he would consider the amicus brief filed by fair housing and consumer groups when deciding the CFPP’s motion to vacate the settlement and that the trial court “may set this matter for an in-person hearing following the review of the filings.”
Valderrama on March 26 granted Mark Paoletta and other attorneys representing the CFPB standing to appear before his court in Illinois, but minutes of the hearing noted that, “At this time, the case remains closed.”
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