CFPB and Townstone Financial Move to Vacate Redlining Settlement Alleging Misconduct Under Former CFPB Director

In a surprising turn of events, the Consumer Financial Protection Bureau (CFPB or Bureau) and Townstone Financial, Inc. (Townstone) have jointly moved to vacate the Stipulated Final Judgment and Order previously entered in the CFPB’s enforcement action against the mortgage lender alleging redlining practices. This motion, filed on March 26, 2025, comes after significant allegations by the CFPB regarding the Bureau’s own handling of the case, which began in 2020 under the first Trump administration and continued under the Biden administration.

The Initial Settlement

As discussed here, in November 2024, the CFPB reached a settlement with Townstone in what was the first redlining case brought against a nonbank mortgage lender and broker. The settlement followed a pivotal decision by the Seventh Circuit Court of Appeals, which held that the provision in Regulation B that prohibits creditors from discouraging prospective applicants was permissible under the language of the Equal Credit Opportunity Act (ECOA).

The CFPB had accused Townstone of discouraging prospective African American applicants from applying for mortgages in the Chicago metropolitan area through derogatory statements made in podcasts and radio shows. The district court initially dismissed the case, agreeing with Townstone that ECOA only prohibits discrimination against “applicants.” However, the Seventh Circuit reversed this decision, holding that ECOA authorizes liability for the discouragement of prospective applicants.

The settlement required Townstone to pay a $105,000 penalty to the CFPB’s victims relief fund and prohibited the mortgage lender from engaging in any actions that violate ECOA. Rohit Chopra, who was serving as CFPB Director at the time of the resolution, hailed the settlement as a significant victory, emphasizing that consumers are protected from illegal redlining even before they submit a mortgage application.

Motion to Vacate

The CFPB and Townstone jointly filed a Rule 60(b)(6) motion to vacate the Stipulated Final Judgment and Order on March 26. The memorandum in support of the motion cites significant problems with the Bureau’s treatment of the case, including unmerited investigation and litigation and the infringement of the defendants’ First Amendment rights.

The motion is supported by a detailed declaration from Dan Bishop, Senior Advisor to the Bureau’s Acting Director Russell Vought. Bishop’s declaration claims that the CFPB’s investigation and litigation against Townstone were flawed from the outset. Key points from the declaration include the lack of a substantial predicate for the enforcement action and motivation based on opposition to the publicly expressed political views of Townstone’s owner, Barry Sturner.

The CFPB expressed its current views in a press release, alleging that the Bureau had identified Townstone through a “redlining screen” that caught 22,000 companies and then targeted Townstone for investigation because it was a small firm that would be easy to bully. The press release further states that there was no evidence of overt discriminatory conduct, but that the CFPB took issue with perceived racial disparities in mortgage application and origination statistics. In addition, CFPB lawyers allegedly misled their superiors about the strength of the case, in part to further diversity, equity, and inclusion goals through regulation by enforcement, and the investigation continued despite the CFPB recognizing that Townstone’s mortgage lending practices did not explain the statistical disparities.

Bishop’s declaration states that the investigation and subsequent litigation were influenced by opposition to the political views of Townstone’s owner, with internal documents revealing a focus on the owner’s social media posts and public statements. In addition, the CFPB purportedly used audio analytics software to mine Townstone’s radio and podcast content, identifying a handful of comments deemed “disconcerting” and “inappropriate.” The CFPB’s press release expressly counters the Bureau’s prior views of the Townstone case: “What was so disconcerting [about Sturner’s public statements]? Talking about local crime, political issues around freedom of speech, supporting local law enforcement, and telling people to check out a neighborhood before buying a home. CFPB used novel regulation-by-enforcement to trample on decades of First Amendment jurisprudence.”

Implications

It was certainly a surprise to see the CFPB move to vacate its own settlement, and doubtless may have other entities who entered into consent orders with the CFPB wondering whether they may be able to “undo” their settlements as well. Perhaps this was a special case because of the alleged politically-motivated targeting of Townstone’s owner, but we will see if any other CFPB settlements are the subject of efforts to unwind them. While undoing a prior settlement appears extreme, this aligns with other recent Bureau activity wherein the CFPB has indicated a desire to reassess its views and positions taken in enforcement actions and litigation under prior administrations, as discussed further here and here.