Small business in Chicago complains about crime, faces federal consequences.

The Battle Between a Small Mortgage Company and the Consumer Financial Protection Bureau

The Consumer Financial Protection Bureau (CFPB) launched an investigation into Townstone Financial, a small mortgage company in Chicago, in 2017. The bureau suspected possible violations of civil rights law by the company.

The bureau bars lenders from making statements that “discourage” minorities from applying for loans.

Townstone may have violated this regulation when its employees discussed crime in Chicago on a company-hosted radio show about the mortgage market. The show also advertised Townstone’s services.

The offending statements included a reference to the South Side of Chicago as a “war zone” and a recommendation to “take down the Confederate flag.”

The CFPB argued that even mentioning the flag could scare off black applicants. Facing the possibility of a lawsuit and hefty penalties, Townstone hired a consumer testing firm to determine if the remarks alienated African Americans.

The results were reassuring: Not a single black Chicagoan interviewed found the radio segments offensive. Some even expressed a greater inclination to use Townstone for mortgages after hearing the banter.

However, in July 2020, the bureau sued Townstone anyway, leading to an unprecedented legal battle between the small business and the powerful federal agency. Townstone’s president described it as a “David and Goliath” situation.

“They twisted innocuous statements about crime into something nefarious and then tried to use it to ruin my reputation and destroy my business,” said Barry Sturner, Townstone’s president.

Three years later, the lawsuit was dismissed by a district court, but the CFPB is now appealing that decision to the Seventh Circuit Court of Appeals, potentially taking the case to the Supreme Court.

This legal battle highlights how government agencies, under the guise of protecting civil rights, can bully and bankrupt businesses for constitutionally protected speech.

“Content- or viewpoint-based restrictions on speech are antithetical to the First Amendment,” said Jessica Thompson, an attorney at the Pacific Legal Foundation.

The CFPB’s actions against Townstone were based on statements made on the radio show that the agency deemed discriminatory. However, some of these statements were widely used by black Chicagoans themselves and were considered reliable and helpful.

The agency also criticized Townstone for advising listeners to take down the Confederate flag before selling their homes, a recommendation in line with the National Association of Realtors’ policy.

While the CFPB declined to comment, it is believed that the agency initiated the investigation into Townstone based on disparities in loan applications and approvals in black neighborhoods.

Such disparities, although not illegal, can be seen as evidence of discrimination and can lead to lawsuits. This creates a system where quotas become effectively mandatory, even without official requirements.

The CFPB’s expansive interpretation of the Equal Credit Opportunity Act, which includes “prospective applicants,” raises questions about lenders’ ability to speak openly about crime.

As the Seventh Circuit reviews the appeal, the Supreme Court is also reviewing the CFPB’s funding structure, sparking debates about the agency’s purpose and necessary reforms.

This case serves as a reminder of the potential constitutional abuses that can occur when government agencies appoint themselves as speech police and censor discussions on public issues.

Published under: Anti-Racism, Ayanna Pressley, Big Government, Censorship, Chicago, Consumer Financial Protection Bureau, Crime, Feature, First Amendment, Free Speech, Lawsuit, Small Business