A day after the Consumer Financial Protection Bureau (CFPB) sued Townstone Financial for violations of the Equal Credit Opportunity Act and redlining, counsel for the company released a statement challenging the allegations.
Co-counsel James Bopp Jr. of The Bopp Law Firm said the bureau was using the case to drive advertising away from conservative talk radio.
“Townstone is outraged by inaccurate and defamatory allegations made by the CFPB because Townstone is dedicated to helping each and every consumer obtain the dream of homeownership, regardless of their race, ethnicity, or gender,” the statement said.
The statement said Townstone did, in fact, make active efforts to reach minority audiences, contrary to the CFPB’s allegations. It also detailed findings from an independent study of Townstone’s Home Mortgage Disclosure Act information which it said found the company was not an outlier among its peers in terms of minority applications – again, contrary to the bureau’s allegations.
“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,” Bopp stated. “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.”
The statement from co-counsel, who also include Richard Horn of Garris Horn LLP, Sean Burke of Mattingly Burke Cohen & Biederman LLP, and Marx Sterbcow of The Sterbcow Law Group LLC, said that the bureau had taken an “unprecedented step” in filing the case. It argued that the case is based entirely on the facts that Townstone advertised primarily on AM-560, a Salem media radio state, and its owner and staff engaged in speech with which Democrats disagreed.
“Essentially, 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,” the statement said. “This is the next step in the left’s ‘cancel culture.’ They are now using the enforcement powers of the federal government to attack free speech, speech they do not want you to hear.”
The lawyers claim the case will have “chilling effects” on free speech in the financial services industry, as the case makes it a fair lending violation to make statements about the crime rate in Chicago and in support of 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 statement read. “The CFPB is engaging in an outrageous trampling on the First Amendment.”
In its initial report in 2019, The Title Report said the expected filing of the lawsuit essentially would impose a new Equal Time Rule for the industry’s marketing. The Equal Time Rule is a portion of the Communications Act of 1934 which provides that broadcast licensees must permit equal use of broadcast facilities to all legally qualified candidates for political office and that the broadcast licensee may not censor the candidates’ messages, and the action would establish similar practices as a determination for discrimination in advertising under ECOA.
The statement claims the CFPB referred the investigation, which began in 2017, to the Justice Department but that the department declined to pursue action. Townstone Financial advertised on a number of different radio stations in the Chicago market, including news talk stations AM-720 and AM-890 and sports talk station AM-670. At issue in the CFPB’s investigation, however, was Townstone’s advertising on news talk station AM-560, a conservative radio station.
“The CFPB alleges that Townstone did not reach out to minority areas of Chicago. However, Townstone decided to advertise on AM radio specifically to reach as broad a geographic area as possible,” the statement said. “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.
“While most other small lenders work primarily off of referrals from real estate brokerages and agents, Townstone advertised directly to the public and provided free information in its radio program, because it wanted to help consumers.”
Townstone also disputed the CFPB’s complaint which said that it did not employ an African-American loan officer, saying the company has employed an African American loan processor in the past, as well as other minority employees, including Hispanic loan officers and Asian employees.
Townstone disputed the CFPB’s allegations that the statements it referenced, which were made on the radio show, were racist. Rather, it said, “the comments are fact-based, citing facts about societal problems in the South Side of Chicago area with violence and the lack of adequate grocery stores.”
“Finally, the radio and podcast comments cited in the CFPB’s lawsuit are taken out of context of a larger discussion, and do not reflect Townstone’s radio and podcast,” the statement said.
The company detailed responses to each of the remarks which the CFPB found to be emblematic of ones meant to discourage African-American borrowers from applying for loans with the company:
- Jungle Jewel. It is well-known that people in Chicago called the grocery store referenced in the complaint “Jungle Jewel.” Clicked here for a blog post from an African American blogger about the store.
- Hoodlum Weekend. Regarding the “hoodlum weekend” comment, it was simply referring to a term that Chicago police officers had used. In addition, the word “hoodlum” is not an inherently racial term, as the CFPB alleges. The word “hoodlum” is defined as “a violent person, especially one who is member of a group of criminals.” See here. The word “hoodlum” is often used in normal discourse and not as a proxy for an African-American.
- Regarding the “war zone” comment, it is a well-known fact – recognized by people from across the political spectrum – that the South Side of Chicago has a high crime rate. Chicago’s South Side has often been described as a “war zone” by many people who are working to quell violence on the South Side. NBC News interviewed Deborah Gorman-Smith, Dean at the University of Chicago’s School of Social Service Administration and Director of the Chicago Center for Youth Violence Prevention, about growing up on the South Side of Chicago and she stated, “it’s like navigating through a war zone.” In addition, President Trump has repeatedly described Chicago’s violence as worse than Afghanistan, an actual war zone.
- Skydiving. Regarding the “skydiving” comment, we simply do not see how this statement is at all offensive. The South Side of Chicago has a high crime rate, a factual statement that cannot be refuted. Walking at night in a high crime area is dangerous. Skydiving similarly is dangerous.
- Confederate flag. This was a statement by Townstone’s former co-owner, who left the company in June 2015. Regarding the Confederate flag comment, the comment is about “taking down” a Confederate flag, not putting one up. It is not discriminatory to talk about taking down a Confederate flag.
- Markham. This was also a statement by Townstone’s former co-owner, who left the company in June 2015. Regarding the Markham comment, if an area has a high crime rate, that is a fact. Discussing facts and how one should stay safe in an area of high crime cannot be the basis of a fair lending violation.
- Regarding the comment about women having lower credit scores, that societal problem has been found by studies by reputable organizations, including a Credit Sesame study in 2016. The discussion of a societal problem cannot be the basis of a fair lending violation. These issues are discussed in this blog post. Reputable news organizations have also reported on this study and this societal problem.
The CFPB alleged that Townstone drew fewer mortgage applications from African-Americans during the time period that other lenders in the Chicago metropolitan statistical area (MSA). The complaint said analyses of Townstone’s mortgage-loan applications in the Chicago MSA, as compared to its peer lenders during the relevant period, showed disparities between Townstone and its peers that are “statistically significant.”
Having learned that the CFPB was investigating Townstone over the remarks and its HMDA data, counsel hired outside firms, Kleimann Communication Group, Inc. and CrossCheck Compliance LLC, to provide independent reviews.
Kleimann, the company which the CFPB used to conduct consumer research in making its TRID rule, found that no participants in its tests said the radio show or podcast were discriminatory, and that most said they would refer friends and family to Townstone, and would be willing to consider the company for their own mortgage needs.
Cross Check, meanwhile, compared Townstone’s applications from majority African-American areas of Chicago to its peers. According to the report, Cross Check found, “Peer analysis results indicated that Townstone was not an outlier, having applications/origination percentages within the ranges of the identified peers for both substantial minority areas and South Chicago Majority African-American Census tracts.”