A federal appeals court on Thursday made it easier for the U.S. Consumer Financial Protection Bureau to police a form of housing discrimination known as redlining.
Overturning a lower court ruling, the CFPB can try to block blacks from applying for mortgage loans because Chicago-based Townstone Financial and its co-founder Barry Sterner violated the federal Equal Lending Opportunity Act. .
Justice Kenneth Ripple wrote for the three-judge panel that the CFPB restriction on enforcement applies not only to mortgage applicants, but also to potential applicants who are motivated.
Redlining occurs when lenders refuse or discourage mortgage lending based on race, color, or national origin.
In July 2020, the CFPB sued Townstone and Sterner, citing statements made on Townstone’s AM radio show and long-running business ad called “The Townstone Financial Show” podcast.
Among them, Sterner said Chicago’s South Side was a “thug weekend” between Friday and Monday, and another host, speaking of the predominantly black suburb, said, “You drive through Markham so fast… . You don’t see anybody and you don’t make eye contact with anybody. Don’t.”
Townstone’s practices meant he received fewer mortgage applications from black applicants and for homes in majority-black neighborhoods than his Chicago-area peers, the CFPB said.
Defendants claim the CFPB’s lawsuit is a means of censoring their speech.
But Ripple, an appointee of Republican President Ronald Reagan, said it was “clear” that Congress intended to interpret the Equal Credit Opportunity Act broadly to end discrimination in mortgage applications.
“The word ‘applicant’ cannot be read loosely” to avoid encouraging applicants, Ripple wrote. “Congress has well understood that “any aspect of a credit transaction” includes steps taken by a creditor before an applicant submits his or her loan application.”
Oliver Dunford, an attorney with the conservative nonprofit Pacific Legal Foundation, which represented the defendants, said: “We are disappointed in the decision’s complete disregard of Townstone’s First Amendment arguments. We are evaluating our options for further review.”
A CFPB spokeswoman had no immediate comment.
The 7th Circuit sent the case to U.S. District Judge Franklin Valderrama in Chicago, who dismissed it in February 2023.
The case is CFPB v. Townstone Financial Inc et al, 7th US Circuit Court of Appeals, no. 23-1654.
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