When a Company’s Comments Violate Federal Law

October 29, 2020 at 9:28 am 1 comment

If you’ve never been to the South Side of Chicago, one of the only things you know about it is that it’s the poor part of town; after all, it is the home of Jim Croce’s Bad, Bad Leroy Brown and Frank Gallagher (Shameless) and, more than a few times the scene of crimes investigated by the cleverly corrupt Frank Voight in Chicago PD. But a local Chicago mortgage banker went too far when it used its local radio show/podcast to discourage people from buying homes in the area, according to the CFPB.

In one of the highest profile fair lending cases of the Kathy Kraninger era, the Bureau is suing Townstone Mortgage Company for violating the Equal Credit Opportunity Act and its implementing regulations, as well as for engaging more generally in discriminatory practices. I’ve been hesitant to talk about the case because the fact pattern is so unique that I wasn’t sure that much useful guidance could be gleaned from the litigation. But last week, the Defendant company moved to dismiss the lawsuit, ensuring that this is not a case that will go away quietly.  

According to the CFPB’s complaint, “Townstone acted to meet the needs of majority-white neighborhoods in the Chicago MSA (metropolitan statistical area) while ignoring the credit needs of majority African-American neighborhoods, thereby discouraging prospective applicants from applying to Townstone for mortgage loans in their neighborhoods.” The core of the CFPB’s complaint stems from the Townstone Financial Show, which started airing in 2014. It was co-hosted by executives at the company, and the company generated more than 90 percent of its applicants from radio advertising, including through the show. Among the statements, during a 2017 segment, the CEO described having to visit an old grocery store as “having to go to the Jewel on Division, we used to call it Jungle Jewel, there were people from all over the world going into the Jewel. It was packed. It was a scary place.” In another episode, he describes the South Side of Chicago between Friday and Monday as “hoodlum weekend.” 

Last Friday, the company filed a motion seeking to dismiss the CFPB’s complaint. First, it argues that the ECOA isn’t applicable in this case because it outlaws discrimination against mortgage applicants, not potential mortgage applicants. However, to win this argument, the company will have to successfully show that Regulation B, which outlaws discrimination against applicants, goes beyond the scope of federal law by also prohibiting lenders from discouraging potential applicants from applying for mortgage loans. The Defendant also makes a free speech argument, contending that even if its statements were discriminatory, they were protected under the first amendment. 

I will keep you posted, but I trust readers of this blog already know that we are well-past the age where it is acceptable for lenders to disparage potential customers because of where they come from or what they look like.  

Entry filed under: Federal Legislation, Mortgage Lending, Regulatory. Tags: , , , , , , , , .

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1 Comment Add your own

  • 1. Thom Powers, Jr.  |  October 29, 2020 at 10:02 am

    The South Side…wild spot. I went to the Old Comiskey Park…I like to go to Wrigley on the North Side when I’m in town. “Hank Voight” played by Jason Beghe is a trivia answer. What actor on “Chicago PD” went to the Collegiate School in Manhattan and was friends with David Duchovny and JFK Jr….of course the answer is Jason Beghe. They are 6 years younger than me…however we had a good relationship with the guys at Collegiate…Power Memorial my alma mater practiced track in Central Park…when it rained, the guys at Collegiate let us practice on there indoor track that circled above there gym. All the best. Thom


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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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