by Hearthstone Legal Group | Nov 20, 2025 | Equal Credit Opportunity Act
In 2024, the Consumer Financial Protection Bureau entered into a settlement with Townstone Financial, Inc., a mortgage lender in the Chicago area. The settlement was based upon allegations made in a 2020 lawsuit by CFPB that Townstone had made multiple public comments (on radio and online) which discouraged African-Americans from applying for mortgage loans, and which disparaged African-American neighborhoods, such as Markham, in the Chicago area (which comments would suggest that Townstone would not offer a mortgage to borrowers from such neighborhoods).
Discouraging financial participation by neighborhood or zip code is known as “redlining.”
The CFPB argued that Townstone’s actions discouraged (discriminated against) potential borrowers of color. The District Court in Illinois rejected this argument and dismissed the lawsuit, on the ground that the 15 USC Sec. 1691, the Equal Credit Opportunity Act (“ECOA”) does not protect potential borrowers. The District (trial) Court relied on the explicit language of ECOA.
The 7th Circuit Court of Appeals reversed this ruling, noting that Regulation B (an enabling regulation of ECOA, in the Code of Federal Regulation), and the portion of ECOA itself, which protects a borrower in “any aspect of a credit transaction,” could logically include planning to submit a mortgage application (i.e., a potential borrower). Several Townstone radio broadcasts suggested that borrowers from Markham, in Cook County, Ill., would not receive a mortgage, and hence, need not apply.
After the Circuit Court’s reversal in 2024, the CFPB and Townstone entered into a settlement, in which Townstone would pay a fine, and commit itself to certain actions, to ensure that discrimination against protected classes, such as African Americans, would cease.
Enter a new Administration, and in 2025, a more conservative CFPB and Townstone filed a motion to vacate the settlement, on the grounds that CFPB no longer found Townstone’s actions in violation of ECOA. The CFPB and Townstone approached the District Court, who, by Judge Franklin Valderrama, refused to vacate the settlement:
“Now, current CFPB leadership [,] under the second Trump administration, in an act of legal hara-kiri that would make a samurai blush, falls on the proverbial sword and attests that the lawsuit lacked a legal or factual basis.”
The Court also said, among other things, that said claim by the current
CFPB was “breathtaking,” but the Court was not convinced. The judge went on to say that:
“(Vacating and dismissing the settlement) would set a precedent suggesting that a new administration could seek to vacate or otherwise nullify the voluntary resolution of a case between a prior administration (or the same administration, but under different agency leadership) and a private party merely because its leadership thought the original litigation unwise or improperly motivated.” [emphasis added].
Any and all settlements could be re-opened and then dismissed, and then re-filed, and then re-dismissed, and then re-filed, ad infinitum. Settlements and rulings need to be final, and the public must be able to rely on settled litigation.
The judge said, “That is a Pandora’s box the Court refuses to open.”
This is not to say that consent orders (settlements structured as court orders) can never be dissolved, such as, for example, where there is a showing of a change of facts on the ground. An order may not exist in perpetuity, if the factors that led to the entry of the order no longer exist. But that was simply not the case on the south side of Chicago in 2025.
The takeaway is that at least one US Circuit Court of Appeals has recently held that ECOA applies to prospective mortgage borrowers, a concept that is fully consistent with the statute, and a method to discourage redlining.
Consumer Financial Protection Bureau v. Townstone Fin., Inc., 2024 WL 3370023 (7th Cir. July 11, 2024.
The author also referred to Banking Dive, “Judge rejects CFPB’s bid to vacate Townstone settlement,” June 13, 2025, to present this commentary on an important legal issue and matter of public interest.
THIS POST DOES NOT CREATE AN ATTORNEY CLIENT RELATIONSHIP, AND DOES NOT CONSTITUTE LEGAL ADVICE. PLEASE CONSULT AN ATTORNEY ! !
by Hearthstone Legal Group | Mar 9, 2023 | Equal Credit Opportunity Act
The Equal Credit Opportunity Act (Title 15 United States Code, Sec. 1691), which has been law since 1974, is intended to curb discrimination in “credit transactions.” Specifically, it protects racial minorities, women, religious minorities, and others who might otherwise be the subject of discrimination in these transactions through institutions that are regulated by the Federal government.
“Credit transaction,” in turn, refers to “every aspect of an applicant’s dealings with a creditor regarding an application for credit or an existing extension of credit (including, but not limited to, information requirements; investigation procedures; standards of creditworthiness; terms of credit; furnishing of credit information; revocation, alteration, or termination of credit; and collection procedures).” 12 CFR 2002.2.
The Courts, the Office of the Comptroller of the Currency, and other regulators interpret 15 USC Sec. 1691 to include as illegal discrimination conduct that has a more negative effect upon minorities, such as defined above, than upon the “average white male” (who, presumably, is usually in the position of lender, or who owns the lender, or who is generally not the target of such discrimination; reference redlining, or restrictive covenants in real estate). In other words, if the effect of a particular lending practice, collection practice, or credit extension practice, has a more negative effect upon minorities than upon a white man, the policy is presumed discriminatory, and the lender must show some good faith justification for it.
For example, if a bank has a policy only lending to those who earn over $200,000 per year, data compiled by the US Department of Labor show that only a very small percentage of African Americans and Latinos have such earnings. Thus, the loan might be available to 30% of whites, but only 2% of African Americans. This policy would be presumed discriminatory, based upon the “disparate impact” or “effects” test. Office of the Comptroller of the Currency, “Fair Lending” (2010), pp. 6-8.
Recently, the Consumer Financial Protection Bureau (CFPB) has sought to expand the reach of the ECOA and similar anti-discrimination statutes through its Unfair, Deceptive, or Abusive Acts or Practices (“UDAAP”) examination manual, a workbook or guide that regulators may use to determine if a particular institution is engaging in discrimination. Institutions contacted for such an examination must respond to questions and provide statistics to ensure that they are in compliance with the law.
According to one commentator, the expanded UDAAP “allows (the CFPB) to address discriminatory conduct in the offering of any [consumer] financial product or service.” Leonhardt, Naimon & Coleman, “CFPB Revises UDAAP Manual to Include Discriminatory Practices,” 139 Banking Law Journal 431 (July-August 2022).
According to this update, ECOA could potentially reach non-credit transactions, or non-lending practices of financial institutions.
This might include bank depositing practices, or bank product offerings. Could it also reach annuities, precious metal IRA’s, and cryptocurrency exchanges? These will have to be decided.
While the reach of the CFPB’s new regulation is unclear, it is certain that there will be political friction over the CFPB’s attempt to increase its regulatory purview. For example, in 2013, Pres. Obama announced that car dealer financing transactions would fall under the guidance of ECOA; minorities often pay significantly more in interest on these dealer-financed loans. The Department of Justice and CFPB successfully litigated discrimination claims pursuant to this guidance. “Justice Department and Consumer Financial Protection Bureau Reach Settlement to Resolve Allegations of Auto Lending Discrimination by Fifth Third Bank,” US DOJ Press Release, September 18, 2015.
This guidance was undone during the following Administration. “Trump Reverses Obama-era Rule Designed to Prevent Racial Bias by Car Dealers,” The Independent, May 21, 2018.
Thus, the question remains whether the reach of ECOA and other anti-discrimination laws can now be successfully applied to enforce the policy of non-discrimination to any number of consumer financial products. This will certainly be the subject of congressional hearings, and will likely be hotly contested in the courts.
THIS POST DOES NOT CONSTITUTE LEGAL ADVICE; PLEASE CONSULT AN ATTORNEY!!
