Why the CFPB Can’t Let a Trump-appointed Judge Gut the Equal Credit Opportunity Act

By Caroline Nagy, senior policy counsel for housing, corporate power and climate justice

This week, the Consumer Financial Protection Bureau filed a notice of appeal in its redlining lawsuit against Townstone Financial and its owner Barry Sturner as part of an ongoing case. In 2020, the CFPB accused Sturner and Townstone, a nonbank mortgage lender, of violating the Equal Credit Opportunity Act (ECOA) by discouraging prospective Black applicants from applying for their mortgages. Unfortunately, in February 2023, Judge Franklin Valerrama of the U.S. District Court of the Northern District of Illinois ruled that the Equal Credit Opportunity Act, which bans discrimination in lending, applies only to credit applicants–not to potential applicants. The U.S. Court of Appeals for the Seventh Circuit will hear the appeal.

The CFPB is correct to challenge this ruling, which would severely undermine the Equal Credit Opportunity Act– a landmark civil rights law prohibiting discrimination in lending based on race, sex, national origin, or other protected status. If allowed to stand, the ruling would weaken the CFPB’s ability to protect the public from racist redlining and other discriminatory lending practices by limiting the ECOA’s application to people who have already applied for credit. This would seriously curtail the agencies’ ability to promote a fair credit market; a lender’s marketing and steering practices can go a long way to determining who will apply for credit.

In this case, Townsend’s mortgage lending was almost exclusively conducted in majority-white neighborhoods, with little to no lending in Chicago’s majority-Black neighborhoods: according to the CFPB complaint, only 1.4% of Townstone loan applicants were Black and less than 1% of applications were for properties in Black neighborhoods, even though 30% of Chicago residents are Black. In a recent Congressional hearing, Rep. Ayanna Pressley condemned Townstone’s practices as “modern-day redlining, plain and simple,”

Townsend hosted a radio show, the Townstone Financial Show, where, in addition to advertising Townstone loan products, Barry Sturner regularly made racist, disparaging remarks about majority Black neighborhoods in the Chicago area. For example, according to the complaint, Sturner referred to a particular Jewel supermarket in a majority Black neighborhood as “Jungle Jewel,” characterized the South Side of Chicago as “hoodlum,” and stated that women in another predominantly Black area practiced poor financial management. 

The CFPB reasonably argued that these statements discouraged Black applicants from applying for a mortgage with Townsend and prospective applicants from seeking mortgage financing for a home in a majority-Black neighborhood. 

The ruling would also gut the ECOA’s implementing regulation, Regulation B, which explicitly prohibits a creditor from making any statement that would discourage applicants of a particular race or other protected status from applying. This prohibition has regularly been followed by courts since it was first implemented in 1975. 

This protection is essential because these practices are still prevalent in lending today. A 2022 study by the National Community Reinvestment Coalition found that Black female and Hispanic male testers received significantly less information about loan products than their white male counterparts and that Black female testers were provided less information about loan products and discouraged more compared to white female and Hispanic female testers. One bank officer told a Black tester that “my business was not the type of business they would do loans for and he stated that [X type of business] was not a stable business to be in. He spoke in a negative manner about my business saying that I would probably have some difficulty getting a loan.” However, a white tester with a weaker financial profile in the same industry was given information about a business loan, the application process, and interest rates.

Judge Valerrama’s ruling is discriminatory and dangerous for Black and brown families aspiring to buy homes and become business owners, or for anyone seeking to obtain credit without discrimination. If the ruling was allowed to stand, it would make it easier for lenders to get away with discouraging, dissuading, and steering potential applicants on the basis of their race, sex, or other discriminatory factors. To truly provide the equal credit opportunities promised under the ECOA, federal enforcement agencies like the CFPB must have the power to examine a lender’s steering and marketing behaviors.