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 ! !
