Townstone Hits Back At CFPB Over Redlining Lawsuit

Lawyers for the Chicago mortgage company Townstone Financial accused the Consumer Financial Protection Bureau of targeting their client because of their political views – and not their business practices, as laid out by the agency earlier this week.

Specifically, the lawyers say, “(CFPB Director Kathy) Kraninger is saying in this lawsuit that financial institutions are engaging in unlawful discrimination if they advertise too much on conservative media, or if their owners, executives, or staff express conservative political viewpoints, such as statements in support of the police. This is the next step in the left’s `cancel culture.’”

On Wednesday, the CFPB filed a lawsuit against Townstone for allegedly discouraging Black applicants from applying for loans while engaging in redlining by discouraging borrowers for investing in predominantly African-American neighborhoods.

The CFPB alleges Townstone “drew almost no applications for properties in African-American neighborhoods” in the Chicago metropolitan area between 2014 and 2017, while processing few applications from potential Black borrowers in the Chicago area.

Townstone’s lawyers scoffed at the notion, saying the CFPB “has taken the unprecedented step of filing suit against a small three-person business, accusing it of discrimination based on its political speech about the crime rate and in support of police in Chicago, and other societal problems in Chicago.”

“The CFPB is using this case to drive all banking and mortgage companies away from advertising on conservative talk radio and to punish mainstream conservative political speech and social commentary,” co-counsel James Bopp Jr. said. “The CFPB has long been controversial and just lost a case in the United States Supreme Court for being improperly structured. They have been waiting years to file a case on the eve of a Presidential election to damage conservative voices. This is another federal agency weaponized to attack conservatives that needs to be stopped.”

Kraninger is a Republican who has served as CFPB director since 2018. She previously worked in the Office of Management and Budget for President Trump.

CFPB Allegations

In its lawsuit filed in the federal court in the Northern District of Illinois, the CFPB alleges Townstone executives made statements during its weekly radio shows and podcasts that:

  • Discouraged prospective African-American applicants from applying to Townstone for mortgage loans.
  • Engaged in illegal redlining by discouraging prospective applicants living in African-American neighborhoods in the Chicago from applying to Townstone for mortgages.
  • Engaged in illegal redlining by discouraging prospective applicants living in other areas from applying to Townstone for mortgage loans for properties located in African-American neighborhoods in the Chicago area.

Redlining is the practice of denying mortgages – or other goods or services – to whole neighborhoods on the basis of race or ethnicity. The Fair Housing Act of 1968 was passed to fight redlining.

Specifically, the lawsuit details statements made by company executives, including CEO Barry Sturner. These include:

In January 2017, Sturner discussed going to a grocery store in downtown Chicago by saying he “(had) to go to the Jewel on Division. … We used to call it Jungle Jewel. There were people from all over the world going into that Jewel. It was packed. It was a scary place.”

The CFPB alleges, “`jungle’—a word that may be used or understood to be a derogatory reference associated with African Americans, Black people, and foreigners—and saying that the grocery store was “scary” would discourage African-American prospective applicants from applying for mortgage loans from Townstone.”

In June 2016, the CFPB said, Sturner “stated that the South Side of Chicago between Friday and Monday is `hoodlum weekend’ and that the police are `the only ones between that turning into a real war zone and keeping it where it’s kind of at.’”

Because the South Side is majority Black, the CFPB alleges, using the word “hoodlum” would discourage people living elsewhere to pursue Townstone mortgages to live on the South Side.

Another example cited by the CFPB reads: “In a November 11, 2017 episode of the Townstone Financial Show … Townstone’s senior loan officer discussed a recent skydiving experience and the ensuing `rush’ from the jump; Townstone’s vice-president responded that he thought skydiving was crazy and suggested that “walking through the South Side at 3AM [would] get the same rush.”

The CFPB contends calling the South Side dangerous is disparaging to the region and to African-Americans who live there, thereby discouraging people from pursuing mortgages in the area – as well as discouraging Black borrowers from working with Townstone.

The CFPB also notes that Townstone attracted few mortgage applications from African-Americans. From 2014 to 2017, the window covered in the complaint, just 1.4 percent of applicants came from African-Americans in the Chicago region (compared with 9.8 percent for other lenders).

Also during that period, less than 1 percent of Townstone applications were for properties in African-American neighborhoods, even though 13.8 percent of Chicago-area homes are in such neighborhoods.

The full complaint with other examples can be found here.

Townstone’s Response

Townstone’s lawyers dispute claims that the company didn’t target African-Americans for loans, while also noting it is a small company that averaged just $177 million in loan volume per year between 2014 and 2017. They took particular issue with claims that the company advertised on certain radio stations that do not target African-Americans, saying the company had advertised on more diverse stations in the past.

“Townstone decided to advertise on AM radio specifically to reach as broad a geographic area as possible,” the company’s lawyers said in a lengthy rebuttal to the lawsuit. “It is widely known that AM radio’s signal strength is better than FM radio, and these AM radio stations’ coverage maps reach as far as neighboring states. As a result, there cannot be a legitimate claim of actual, physical `redlining.’ Further, these radio stations broadcast professional sports, which has a broad demographic that Townstone intended to reach. Townstone advertised on AM radio, to reach as many listeners from as many backgrounds as possible.”

Townstone’s lawyers say the company is being targeted purely for the political views of its executives.

“Significantly, this case will have chilling effects on free speech for those in the financial services industry leading up to the November presidential election,” the lawyers said. “This is especially true as the presidential race shifts to a focus on law and order, as this case basically makes it a fair lending violation to make statements about the crime rate in Chicago and in support of the police.

“Now to avoid fair lending risk, financial institutions and their owners and executives will have to curb their advertising in conservative media and conservative political speech or at a minimum give `equal time’ to advertising on liberal media outlets. The CFPB is engaging in an outrageous trampling on the First Amendment.”