CFPB Investigation into Townstone: Timeline and Implications
Background of the Investigation
The Consumer Financial Protection Bureau (CFPB) has faced scrutiny regarding a lengthy investigation involving Townstone Financial, a mortgage lender. Bishop, an attorney representing Townstone, argues that the CFPB did not have a solid factual basis for a seven-year inquiry into the firm’s practices. He claims that agency lawyers misled leadership and exhibited bias against the views of Townstone’s owner, Barry Sturner.
Initiation of the Inquiry
The investigation reportedly originated after the CFPB conducted a “redlining screen” on data submitted under the Home Mortgage Disclosure Act (HMDA). This analysis prompted fair lending staff to suggest an investigation, linking the lack of African-American and Hispanic customers to “repeat and referral applications,” according to Bishop.
Additionally, allegations surfaced suggesting that Sturner highlighted his commitment to lending to low-income applicants while noting the absence of African-American loan officers within the firm.
Concerns Over Methodology
Another controversial aspect of the investigation included the use of audio analytics software to analyze content from a radio show hosted by Townstone. Bishop pointed out that the bureau labeled the show as “overtly political,” despite just 0.33% of the analyzed content being critical of the CFPB.
Marx Sterbcow, managing attorney at Sterbcow Law Group, emphasized during an interview with HousingWire that a full review of the show’s content revealed no offensive material, contrary to the bureau’s assertions.
Alleged Misrepresentation of Enforcement Guidance
Court documents suggest that the CFPB’s investigation was flawed in its interpretation of Regulation B, which outlines that explicit racial preferences must be demonstrated for actions to qualify as discriminatory. Bishop asserts that evidence supporting harm to applicants based on the aforementioned audio content was absent.
In correspondence with then-CFPB director Kathleen Kraninger, it is alleged that investigators omitted crucial Supreme Court guidelines regarding race-conscious remedies in their findings.
In August 2019, Townstone filed a comprehensive 165-page response that included survey results indicating that Black respondents from a consumer testing firm did not find offense in the company’s practices or statements. This filing also involved a statistical comparison with peers in the mortgage industry to reinforce Townstone’s findings.
Legal Proceedings and Future Directions
Following dismissive responses from the CFPB, the investigation continued for several months, culminating in a lawsuit filed in July 2020. Initial rulings favored Townstone, with a federal judge in Illinois dismissing the case in February 2023. Despite this, the CFPB indicated plans to appeal, which ultimately reaffirmed their authority under the Equal Credit Opportunity Act (ECOA).
Sterbcow voiced concerns about the need for increased oversight within the CFPB, pointing out that the bureau has occasionally overstepped its bounds in its regulatory pursuits. He anticipates that congressional hearings may emerge from this situation and argues for necessary reforms within the agency to prevent politicization in regulatory enforcement.
Closing Thoughts
The ongoing developments in the Townstone case highlight the complexities of fair lending practices and the scrutiny that can arise from regulatory bodies. As the CFPB faces calls for reform, the implications of this case may lead to significant changes in the agency’s operational procedures and oversight mechanisms in the future.
