The Consumer Financial Protection Bureau (CFPB) has broad authority under the Equal Credit Opportunity Act (ECOA) to prohibit discrimination against credit applicants and to prohibit discouragement of potential credit applicants.
This gives the department greater enforcement power as it fights redlining policies, including in its lawsuit against Chicago-based Townstone Financial, according to court documents reviewed by HousingWire.
In the summer of 2020, the CFPB filed a lawsuit against Townstone, alleging that the property violated Regulation B of the ECOA by receiving “few applications for properties in majority African-American neighborhoods in the Chicago-Naperville-Elgin Metropolitan Statistical Area (Chicago MSA) and few applications from African-Americans throughout the Chicago MSA.”
This, the CFPB argued, amounted to discrimination. In October of that year, Townstone filed a motion to dismiss the lawsuit. A federal judge in Illinois ruled in Townstone’s favor in February 2023, but the CFPB vowed to appeal. The agency has asked the U.S. Court of Appeals for the Seventh Circuit to review the ruling.
After more than a year of arguments and oral arguments, a three-judge panel of the appeals court ruled in favor of the CFPB on Thursday.
“The district court determined that ECOA does not permit the imposition of liability for discouraging future applicants,” the ruling read. “For the reasons set forth in the opinion below, we take a different view.”
In a statement provided to HousingWire, Steve Simpson of the Pacific Legal Foundation, which is representing Townstone in the lawsuit, expressed disappointment with the verdict but said the organization will continue to explore a way forward.
“We are disappointed with the court’s decision, as it did not consider many of our legal arguments,” Simpson said in an email. “And regardless of the legal issues with Regulation B, the CFPB’s lawsuit against Townstone is a clear violation of the First Amendment. While we are considering what steps to take next, our defense of Townstone’s CFPB regulatory overreach is far from over.”
The Committee further noted that ECOA provided the Federal Reserve, and later, after passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB, with sufficient authority to enforce ECOA in this way.
“A comprehensive analysis of ECOA’s language makes clear that it prohibits not only overt discrimination against credit seekers, but also the disincentive of credit seekers,” the ruling states. “Congress authorized the Commission (and later the Bureau) to issue regulations that are ‘necessary or appropriate to effectuate the purposes of this provision’ or ‘prevent evasion of or omission from this provision.'”
The Committee went on to state that Congress’ intent in passing ECOA was to make its enforcement authority broad-reaching.
“Congress noted that it needed to interpret ECOA broadly to accomplish its objective of eliminating discrimination in credit applications. Moreover, other provisions of ECOA provide strong support that blocking applications for credit is a violation of the law,” the ruling states.
HousingWire reached out to a representative from the CFPB but did not immediately receive a response.
