U.S. District Judge Franklin Valderrama has denied an attempt by the Consumer Financial Protection Bureau (CFPB) to vacate a previous redlining settlement against Townstone Financial in the case of CFPB v. Townstone Financial, Inc., No. 1:20-cv-0417, finding there was no basis for granting the request.
The CFPB originally brought the case in 2020 during Donald Trump’s first term as U.S. President, accusing Townstone Financial of “redlining” by discouraging would-be minority homebuyers from applying for mortgages through derogatory and disparaging comments in promotional materials.
Earlier this year, Acting Director of the CFPB Russ Vought asked to vacate the settlement the CFPB extracted from Townstone Financial after a seven-year harassment saga. Using a “redlining screen” based on an arbitrary number of mortgages, CFPB set out to destroy a small Midwest firm with about 10 employees and a radio program called Townstone Financial. After a thorough review, the CFPB is seeking to make Townstone whole by returning the six-figure penalty they were forced to pay.
“CFPB abused its power, used radical ‘equity’ arguments to tag Townstone as racist with zero evidence, and spent years persecuting and extorting them–all to further the goal of mandating DEI in lending via their regulation by enforcement tactics. The more we uncover at CFPB, the more we see how this agency was weaponized against targeted Americans,” said Acting Director Russ Vought.
“The court got it right from start to finish. First, it rejected the parties’ claim that the rule governing such motions for relief from judgment should be relaxed, holding that they must still show extraordinary circumstances,” said Stephen Hall, Legal Director and Securities Specialist with Better Markets. “It relied in part on the Supreme Court’s recent holding reaffirming this stringent standard. Next it rejected the parties’ arguments focused on the original basis for the enforcement action and the notion that the First Amendment protected the discriminatory speech at issue. As the court said, the CFPB’s about face on the basis for the action was ‘an act of legal hara-kiri that would make a samurai blush.’”
History of the Case
CFPB ran a “redlining screen” that caught 22,000 companies and then winnowed it down to a handful with unexplained “qualitative research.” Townstone feels it was targeted because it was a small firm of approximately 10 employees, and had a radio show that touched on political topics.
Townstone feels it was targeted by the CFPB not based on any act of discriminatory conduct, but solely on perceived racial disparities in mortgage application and origination statistics. Data shows an agency-defined “shortfall” of just 31 applications from “majority-minority” areas, out of 876 total applications in a three-year period was the criteria. Townstone had even hired loan outreach officers to go to minority communities, but this did not satisfy the CFPB, who claimed they weren’t the right type of minority. In 2022, CFPB Director Rohit Chopra said “racial equity,” was a “cross-cutting priority,” and Townstone was internally tagged as a target important for that priority.
Townstone claimed the CFPB used audio mining software to search Townstone’s radio show and podcasts finding that they engaged in political speech critical of the Bureau. They identified 16 minutes out of nearly 79 hours of radio content (0.33%) that they deemed “disconcerting” and that “could be interpreted as inappropriate, incorrect, or insensitive.”
“They twisted innocuous statements about crime into something nefarious and then tried to use it to ruin my reputation and destroy my business,” Townstone’s Owner Barry Sturner told the Washington Free Beacon. “When a federal agency with an unlimited budget and army of lawyers comes after your business and smears you as a racist, you’re forced to give in and take it or choose an uphill fight.”
CFPB lawyers wrote in an internal memo that Townstone could be penalized $28,906 per day for four years, a total of $42,202,760 for alleged violations of civil rights law.
“At bottom, to grant the motion based on the arguments advanced by the parties would be to undermine the finality of judgments,” Judge Valderrama said. “That is a Pandora’s box the court refuses to open.”
Steve Simpson, a lawyer for Townstone said that he was considering its next steps and hoped that Congress would “reconsider the case.”
Hall added, “Finally, and in the end, the court rested on the enormous threat to the finality of judgments that the parties’ motion represented. As the Amicus brief pointed out, the motion would severely erode public confidence in the finality of judgments. In the concluding words of the court, it ‘would set a precedent suggesting that a new administration could seek to vacate or otherwise nullify the voluntary resolution of a case between a prior administration (or the same administration, but under different agency leadership) and a private party merely because its leadership thought the original litigation unwise or improperly motivated. That is a Pandora’s box the Court refuses to open.’”
