Nobody was surprised when the Consumer Financial Protection Bureau began dropping enforcement actions and lawsuits after replacing Rohit Chopra as director and installing Russell Vought as acting director. But Vought went beyond that yesterday, announcing that the Bureau was seeking to vacate a settlement the CFPB reached last Fall with a mortgage lender and repay the lender $105,000. The twist? The enforcement action was actually started under former director Kathy Kraninger, not Chopra.
The case in question involves Townstone Financial, a small, Chicago-based mortgage lender, which was accused by the CFPB of racial discrimination in its lending practices. The CFPB accused the company for allegedly violating the Equal Credit Opportunity Act (ECOA), based on a statistical analysis showing Townstone drew fewer applicants from majority-Black neighborhoods compared to its peers.
In 2020, under the first Trump administration, when the CFPB first brought the suit under Kraninger’s leadership. Townstone denied all allegations, stating that the comments cited by the Bureau were not racially motivated and that the company had not engaged in redlining — intentional discrimination against communities based on racial demographics.
The CFPB and Townstone have now jointly moved to vacate the settlement that was reached last November. Vought, who took over as acting director, characterized the original case as an overreach, stating that the agency used “radical ‘equity’ arguments to tag Townstone as racist with zero evidence.” The agency’s internal investigation revealed significant flaws in how the lawsuit was handled and how the settlement came to be. The Bureau is now seeking to undo the settlement and return the $105,000 that Townstone paid to resolve the case.
The controversy stems from the nature of the CFPB’s investigation. The Bureau had used an audio analytics tool to comb through years of Townstone’s radio content, identifying just 16 minutes out of 78.5 hours of broadcast time that it found concerning. Despite no complaints from customers or evidence that any potential borrowers were deterred by the comments, the Bureau pursued the case based on perceived racial disparities in the company’s mortgage origination statistics.
Legal sources have offered differing perspectives on the case. Critics of the Bureau’s actions, such as Steve Simpson, an attorney at the Pacific Legal Foundation, have argued that the CFPB overstepped by targeting Townstone for its political speech, which is protected under the First Amendment. The CFPB’s investigation, they contend, was based on a flawed understanding of what constitutes discriminatory conduct.
On the other hand, advocates for stricter regulatory enforcement in lending practices view the CFPB’s move to vacate the settlement as problematic. Christine Chen Zinner, a senior lawyer at Americans for Financial Reform, called the attempt to undo the settlement “bananacakes,” pointing out that the appellate court had already ruled that the fair-lending law applied in this case. She expressed concern that such a reversal would send the wrong message, signaling that discriminatory behavior in lending practices could go unchecked.
The case has drawn attention beyond just legal and regulatory circles. The conflict over diversity, equity, and inclusion (DEI) in lending is a flashpoint in today’s political climate, especially with companies like Townstone facing increasing scrutiny over their marketing practices and public statements. For small firms with limited resources, the costs of defending against such a protracted case are significant, often leading to settlements not necessarily because of guilt, but to avoid the financial strain and reputational damage of continued litigation.
