The Consumer Financial Protection Bureau (CFPB) argues its
enforcement action against a three-person Chicago mortgage company accused of violating
the Equal Credit Opportunity Act (ECOA) and redlining does not violate the
First Amendment and should not be thrown out, as the company contends.
“Discouragement of prospective applicants on the basis of
race is a form of illegal discrimination,” the CFPB argued in a filing opposing
the company’s motion to dismiss. “Townstone’s commercial speech in violation of
ECOA is not protected by the First Amendment.”
See also: Does CFPB enforcement action violate First Amendment?
Last year, the CFPB sued Townstone Financial Inc. and owner
Barry Sturner in the U.S. District Court for the Northern District of Illinois,
Eastern Division, for alleged statements during weekly radio shows and podcasts
that illegally discouraged prospective African-American applicants from
applying for mortgage loans.
Last month, attorneys for Townstone and Sturner asked the
court to dismiss the bureau’s action, arguing it violated Sturner’s First
Amendment rights.
“The law provides no respite for Townstone’s discrimination,”
the CFPB responded in its opposition to the motion to dismiss. “Townstone, a
mortgage-loan creditor, has for years engaged in unlawful discrimination by
engaging in acts or practices that would discourage prospective applicants, on
the basis of race, from applying for credit.”
The CFPB filing stated “unlawful discrimination may be based
on the race of a particular applicant or prospective applicant or on the racial
characteristics of a neighborhood generally. The amended complaint provides
several examples of Townstone’s statements that would have discouraged
reasonable prospective applicants on the basis of race, including that
Townstone disparaged majority-African-American neighborhoods as ‘hoodlum
weekend’ and approaching ‘a real war zone’ or as ‘crazy’ and places ‘to be
driven through quickly’ while avoiding eye contact; referred to a place with ‘people
from all over the world’ as a ‘jungle’ and ‘scary;’ and disparaged the women of
a predominantly African-American area in Chicago. Townstone recorded and posted
these statements as part of its marketing on its website and elsewhere online.”
The CFPB argues those statements, “made during a marketing
infomercial, are commercial speech and relate to illegal discrimination. This
commercial speech by Townstone falls outside the First Amendment’s protections.”
The CFPB filing cites “statistical evidence that Townstone
did not draw applications from African-Americans or from African-American
neighborhoods in the Chicago MSA, as well as descriptions of Townstone’s hiring
and marketing practices, all of which also support the bureau’s claims of
discouragement and discrimination in violation of ECOA.”
In an amended complaint filed late last year, the CFPB also alleged
Townstone fraudulently transferred $2.4 million dollars from company accounts
into Sturner’s accounts with “actual intent to hinder, delay or defraud the
bureau.”
In last month’s filing, Sturner’s attorneys said that
allegation “should also be dismissed because that claim only becomes relevant
if the bureau succeeds on its claims against Townstone, which for reasons
articulated herein, it cannot.”
“Townstone and Barry Sturner cannot prevent the bureau’s
collection on any favorable judgment in this case by fraudulently transferring
Townstone’s assets,” the CFPB responded in its filing. “The amended complaint
adequately alleges claims for relief, and defendants’ motion to dismiss should
be denied.”