The full complaint is available here: https://files.consumerfinance.gov/f/documents/cfpb_townstone-financial_complaint_2020-07.pdf

It alleges that the lender took a large volume of loan applications in the Chicago Metropolitan Statistical Area (MSA) from 2014 through 2017, but took virtually no applications for properties in African-American neighborhoods in the Chicago MSA. The complaint then alleges that the lender’s acts and practices discouraged prospective applicants in those African-American neighborhoods from applying for a loan.

The complaint cites specific lender statements in its weekly marketing radio shows and podcasts that would discourage African-American applicants. The radio show, broadcast on a Chicago AM station, reached the entire Chicago MSA, and apparently generated the vast majority of the lender’s loan applications. However, only 1.4% of the lender’s applications came from African-Americans from the Chicago MSA during that period, as compared to 9.8% of applications taken by other lenders active in the Chicago MSA. The most telling visual evidence in the complaint is the final page, labeled Exhibit A, which is a map of the Chicago MSA color-coded by percentage of African-American residents and overlaid with the locations of the lender’s applications.

The alleged ECOA violation, which if proven would also be a CFPA violation for violation of a “Federal consumer financial law,” is that the lender’s statements, acts and practices together discouraged African-American neighborhoods in the Chicago MSA, and taken together constitute illegal redlining. The CFPB is seeking an injunction against further violations, as well as damages, redress to consumers and unspecified civil money penalty.

Federal agencies have long sought to enforce redlining claims against bank lenders, which also have community outreach obligations under the Community Reinvestment Act (CRA) and the ability to make loans meant to be retained in portfolio. In filing suit against a non-bank lender, which is not subject to the CRA and may be forced to sell all its loan production, and where the complaint is based in part on the lender’s public statements, the CFPB is signaling a change of focus in its enforcement methodology that bears watching.

In this blog post concerning legal and regulatory matters of interest to the mortgage industry, Sandler Law Group (SLG) provides general information and industry observations that are not motivated by or concerned with a particular past occurrence or event, or a specific existing legal problem of which SLG is aware. Nothing published herein is intended to constitute legal advice and the use of the blog post by a reader shall not give rise to an attorney-client relationship with SLG. SLG expressly disclaims any representation of accuracy or reliability as to the content of this blog post, as well as any obligation to maintain such content over time or to ensure it is free from errors. Brad Cope is the attorney responsible for the SLG content of this blog post. Unless otherwise noted, the attorneys of SLG are not certified by the Texas Board of Legal Specialization.