Late last year, the Consumer Financial Protection Bureau reached a settlement with a small mortgage lender based in Chicago, Townstone Financial, fining the company for discriminating against Black homebuyers and discouraging them from applying for loans by bad-mouthing the city’s heavily African American South Side on the radio.
Though Townstone was a minor firm, the case was a major court victory for the government, which described it as a blow against “modern-day redlining” — the practice of refusing to lend in minority neighborhoods.
Learn more: What is redlining, and how does it affect Black communities?
In a surprise move this week, however, the CFPB asked a court to undo its settlement and dismiss the case, claiming it had discovered “significant undisclosed problems” with the investigation that led to the suit, which it said had “trampled” on Townstone’s First Amendment rights. What’s more, the agency asked the judge for permission to return $105,000 that Townstone already paid in penalties.
Under Trump, the CFPB has dropped a slew of lawsuits that it filed late in the Biden administration, including ones against Capital One, the organization that runs Zelle, Rocket Homes, and other major financial institutions.
But its decision in Townstone has dumbfounded former officials and consumer advocates, who struggled to think of any other example of the government attempting to scrap an enforcement case it had already effectively won and offering to refund a penalty.
“I’ve never seen anything like it,” said Sam Levine, the former head of consumer protection at the Federal Trade Commission during the Biden administration. Lisa Gilbert, co-president of the progressive activist organization Public Citizen, called the action “both bizarre and appalling.”
Adding to their sense of shock: The CFPB originally filed its case against Townstone in 2020 during Trump’s first term under his own handpicked director, Kathy Kraninger.
Some consumer protection activists said they were concerned about the precedent the CFPB’s request might set, since it would likely encourage other companies to try reopening old, settled cases. “I would go to the Trump administration and say, hey, you did this for Townstone Financial, can you do this for our settlement too?” said Christine Chen Zinner, senior policy counsel at Americans for Financial Reform.
The CFPB did not return a request for comment.
Illegal redlining or protected speech?
The Townstone case largely focused on comments its executives made on an in-house weekly podcast and AM radio show they used for marketing, “The Townstone Financial Show.” The government argued that it was essentially an extended infomercial, where the firm’s owners and employees talked about issues around mortgages and homebuying — and occasionally took shots at Black neighborhoods in Chicago and surrounding Cook County.
In one episode, for instance, Townstone’s co-founder and CEO described Friday through Sunday on the South Side as “hoodlum weekend” and said the police were the only ones preventing it from turning into a “war zone.” On a different occasion, a host said that walking through the South Side at 3 a.m. would deliver “the same rush” as skydiving. In others, the host said that people needed to “drive very fast” and not “look at anybody” in the nearby, mostly Black city of Markham and called a Jewel-Osco in downtown Chicago “Jungle Jewel.” They added that the grocery store was a “scary place” because it was packed with “people from all over the world.”
The CFPB argued that Townstone’s remarks signaled it wasn’t interested in issuing mortgages in Black and other minority neighborhoods, running afoul of regulations under the Equal Credit Opportunity Act that ban lenders from discouraging potential customers from applying based on race, including in their advertising.
A lower court judge initially dismissed the case, finding that those regulations went beyond what Congress had intended when it passed the law. But the US Court of Appeals for the Seventh Circuit reversed and let the suit go forward, eventually leading to a settlement and fine. Though Townstone did bring up a defense that its show was protected by the First Amendment, the issue was never actually litigated.
The appeals court win and penalty made “clear that people are protected from illegal redlining even before they submit their application,” then-CFPB Director Rohit Chopra said last November.
Conservative groups had long seen the case as an injustice, however. In 2023, researchers at the Competitive Enterprise Institute published an op-ed in The Wall Street Journal arguing that the CFPB was misusing antidiscrimination laws to essentially censor speech about crime in Chicago, and compared the comments from Townstone’s executives to when the city’s own mayor recalled having to shield his children “from bullets that fly right outside our front door.”
This January, the group argued in the Washington Examiner that Trump’s CFPB should “take the unusual but warranted step of rescinding” the fine that Townstone paid and “perhaps provide compensation to the firm for the disruption of its business.”
The CFPB, which has largely shut down operations under the second Trump administration, now says the suit should never have been brought. On Wednesday, it filed a motion in which it said officials had conducted a review of the suit’s history and found that Townstone had been unfairly “targeted” based on “constitutionally protected speech.”
Russell Vought testifies before the Senate Budget Committee on his nomination to be US director of the office of management and budget (OMB) on Capitol Hill in Washington, D.C., January 22, 2025. Vought is acting head of the CFPB too. (Photo by SAUL LOEB / AFP) (Photo by SAUL LOEB/AFP via Getty Images) ·SAUL LOEB via Getty Images
The motion accuses investigators of essentially cherry-picking a handful of comments on the company’s show, pointing out that the government used audio analysis software to find 16 minutes of content from more than 78 hours of tape. The CFPB also never found any potential borrowers who actually claimed to have been discouraged from taking a loan, it noted.
In a statement Wednesday, the acting CFPB Director Russ Vought suggested that the agency’s reversal was part of the administration’s broader effort to undo diversity, equity, and inclusion policies in the public and private sector.
“The 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,” he said.
A powerful message
Progressive consumer advocates told Yahoo Finance that they were fearful the case signaled it would now be open season for lenders who want to discriminate against borrowers. “Dropping this settlement sends a crystal clear message to businesses that discriminatory conduct is somehow now allowed,” said Public Citizen’s Gilbert.
It is unclear whether US District Judge Franklin Valderrama, who is overseeing the case, will grant the government’s request to roll back its own settlement. If he does, it may set a template for the Trump administration to try to undo other old settlement deals.
John Berlau, the Competitive Enterprise senior fellow who advocated for the case to be reversed, said he thought it was unlikely that Trump would try to upend many old settlements. The Townstone executives were “victims of an egregious, unconstitutional prosecution” that required extraordinary action, he argued.
Commercial advertisements usually receive a lower level of protection under the First Amendment than political speech. But Berlau said that Townstone’s program was no different than other podcasts run by business owners aimed at a general audience.
”I think this sends a powerful message to agencies not to weaponize the law against free speech rights,” Berlau said.
Jordan Weissmann is a Senior Reporter at Yahoo Finance.
