The Consumer Financial Protection Bureau filed a lawsuit against Townstone Financial, Inc., a nonbank retail-mortgage creditor based in Chicago, for violations of the Equal Credit Opportunity Act and its Regulation B as well as the Consumer Financial Protection Act.
The complaint alleges that Townstone violated ECOA and Regulation B by engaging in discriminatory mortgage-lending practices and that these violations also constituted violations of the CFPA.
As alleged in the complaint, from 2014 through 2017, Townstone drew almost no applications for properties in African-American neighborhoods located in the Chicago-Naperville-Elgin MSA and few applications from African Americans throughout that MSA.
The company averaged 740 mortgage-loan applications each year during that time. Townstone acted as a correspondent lender for the overwhelming majority of its business and also brokered an average of 60 total Federal Housing Administration and Veterans Administration home loans each year. During the relevant period, Townstone ranked in the top 10 percent of lenders that drew applications from the Chicago MSA. It drew more than 90 percent of its applications from the Chicago MSA during that time, totaling about 2,700 applications and about 1,800 originations during that time.
The complaint, filed in federal district court in the Northern District of Illinois, alleges that Townstone engaged in redlining as well as marketing which discouraged African Americans from applying for mortgages.
Townstone’s alleged redlining included discouraging prospective applicants from African-American neighborhoods from applying for mortgages and discouraging prospective applicants living in other areas from applying for mortgages in African-American neighborhoods.
The complaint seeks an injunction against Townstone, as well as damages, redress to consumers, and the imposition of a civil money penalty.
ECOA and Reg B prohibit mortgage lenders from discriminating against applicants in credit transactions on the basis of race, color, national origin, or other prohibited bases. ECOA and Reg B also prohibit mortgage lenders from making statements, or engaging in acts or practices, that would discourage, on a prohibited basis, applicants or prospective applicants from applying for credit.