The unprecedented corporate pardon granted by the Consumer Financial Protection Bureau (CFPB) Acting Director Russ Vought to Townstone Financial flouts rules designed to prevent redlining and sets a dangerous precedent for reversing civil penalties.

On Wednesday, March 26th, the CFPB ignored the conclusions of a federal judge when it vacated a 2024 settlement with Chicagoland mortgage lender Townstone Financial. The CFPB said it would set aside the $105,000 civil penalty. It highlighted the sharp contrast between this CFPB and its predecessor from the first Trump administration. Enforcement policy under the new CFPB goes like this: It will send a refund to Townstone, but reverse payments to consumers who were due to receive redress from the recent enforcement actions against Zelle and Capital One.  

In a case originally filed in 2020 by Republican-appointed CFPB Director Kathy Kraninger, the CFPB penalized Townstone for egregious remarks made on the Townstone Financial Show. The comments were clearly capable of discouraging applicants of color from doing business with the company. On the show, Townstone CEO Barry Sturmer described the area around a grocery store as “a scary place,” and referred to the store itself as the “Jungle Jewel,” noting that its customers were “people from all over the world.” In another episode, he referred to weekends on Chicago’s South Side as “hoodlum weekend,” claiming that the police were “the only ones keeping that [area from] turning into a real war zone.”

In one call, when a man from Markham, Illinois — a city where over 80 percent of the population is Black — asked for advice on improving his credit, the host responded by saying he needed to “keep those women in line in Markham,” and added that weekends there are chaotic, advising listeners to “drive very fast through Markham” and “don’t look at anybody or lock eyes with anyone.” On a separate occasion, a co-host told home sellers to “take down the Confederate flag.”

These attitudes were made manifest in Townstone’s dismally unfair lending practices. Even though over 90 percent of Townstone’s mortgage loan applications were received in Chicago – one of America’s most diverse cities – Townstone rarely did business with Black customers. Black households make up 30 percent of Chicago’s population. Approximately 490,000 Black residents live on Chicago’s South Side.

• Only 1.4 percent of Townstone’s applications came from Black households, even though nearly 10 percent of Chicagoland mortgage applicants are Black. 
• Just 2 percent of Townstone’s applications came from residents of any demographic makeup who lived in majority-Black census tracts, even though those tracts represent 18.7 percent of the city.
• From 2014 to 2017, less than 1 percent of Townstone’s applications were made for properties in tracts where Black residents constituted more than 80 percent of residents, even though these “high African-American” neighborhoods made up 13.8 of census tracts.
• During the time the show aired, Townstone employed 17 mortgage loan officers — none of whom were Black. 

The message to Black communities was clear: they weren’t welcome. 

Those facts didn’t move Vought away from his belief that the decision was solely about “radical equity arguments,” and thus invalid. He wrote that the complaint’s conclusions, which were built from a publicly-available mortgage lending database established by Congress, were “drawn out of a hat.” The quantitative disparities in lending outcomes, which some might refer to as statistics, were in Vought’s lexicon the results of a “redlining screen.” 

The release went so far as to use the term “abusive” to describe how the CFPB treated Townstone CEO  Barry Sturmer. “Abusive” is a word with legal and political significance. In February, Republican Congressman Andy Barr (R-KY) introduced a bill to prevent the CFPB from using its Unfair, Deceptive or Abusive Acts and Practices (UDAAP) authority to address discrimination. With this step, the CFPB seems to be introducing a new wrinkle to the use of the abusiveness standard: it can be used when it protects discriminatory speech. 

Returning penalties sets a dangerous precedent. By returning the $105,000 in fines to Townstone, the CFPB has surfaced a practice that could lead to more radicalism. The Townstone case had been settled in a court of law. Suddenly, it should raise concerns that the CFPB, under this Acting Director, will grant more pardons to its favored corporate offenders. This form of radical forgiveness could scale quickly. In 2022, the CFPB ordered Wells Fargo to pay a $1.7 billion civil penalty (in addition to $2 billion in consumer redress) for wrongful foreclosures, misapplied loan payments, illegal car repossessions, and other wrongdoing. Imagine if the CFPB chose to make similar reconciliations there.

The decision does not impact the holding by the Seventh Circuit Court of Appeals in this case that discouragement is a violation of the Equal Credit Opportunity Act (ECOA). The first draft of Regulation B, the implementing regulation for ECOA, said that “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.” 12 C.F.R. § 202.4(b) The CFPB’s action does not change the legal precedent that redlining occurs not just when loan applications are denied, but also when lenders signal their intentions to discourage potential customers before an application is made.

Nothing about Wednesday’s decision holds up to an examination of the facts of the case. The comments made on the show were clearly discouraging, the redlining that resulted is easily observed, and the regulations prohibiting these practices have been in place for decades.