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The Consumer Financial Protection Bureau has asked a judge to undo a settlement it reached in a fair lending case against a now-defunct Chicago mortgage broker, claiming an internal review of the case determined the broker was unjustly targeted because of his political views.
The CFPB — which has dropped nine pending consumer lawsuits initiated before President Trump began his second term in office — went a step further Wednesday, filing a motion to vacate the Nov. 7, 2024 settlement with Townstone Financial Inc. and its owner, Barry Sturner.
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Townstone was accused of discouraging Black residents from applying for loans on an AM radio show and podcasts. But an internal review of the case determined that the CFPB “abused its power” in pursuing the case order to “further the goal of mandating DEI in lending,” Office of Management and Budget Director Russell Vought said in a statement Wednesday.
In its motion to vacate the settlement, the CFPB sought to refund the $105,000 fine paid by Townstone, and do away with requirements that the company (or its successors) implement additional policies, procedures, education and training of employees to prevent discrimination for five years.
Vought and his top deputy at OMB, Dan Bishop, are leading the Trump administration’s efforts to downsize the CFPB, with Vought serving a dual role as the CFPB’s acting director. The CFPB’s motion to vacate the Townstone settlement was signed by three OMB attorneys, including Mark Paoletta, who was appointed by President Trump in November as OMB’s general counsel.
In that role, Paoletta was expected to “work closely with [the Department of Government Efficiency, or DOGE] team to cut the size of our bloated government bureaucracy, and root out wasteful and anti-American spending,” Trump said in an announcement.
After the November election, Elon Musk — the public face of DOGE — posted, “Delete CFPB,” on his social media platform, X. “There are too many duplicative regulatory agencies.”
Although the Trump administration’s attempts to fire most of the CFPB’s 1,700 employees have been delayed in court, “virtually all pending investigations have been brought near to a standstill,” ProPublica reported Wednesday, citing anonymous sources, court records and internal emails.
Vought and Paoletta have allowed seven ongoing CFPB lawsuits to move forward, but investigators working on other pending cases, “can’t speak with lawyers representing companies that have been subpoenaed, interview witnesses or take other significant actions” without Paoletta’s approval, ProPublica reported.
The case against Townstone
After several years of investigation, the CFPB sued Townstone in July, 2020 — the final year of the first Trump administration, when the bureau was led by Trump appointee Kathy Kraninger.
In an amended complaint against Townstone that fall, CFPB attorneys maintained that statements made by hosts of the company’s AM radio call-in show and podcasts discouraged prospective Black applicants from applying for mortgages, violating the Equal Credit Opportunity Act (ECOA).
In a 2016 episode, for example, Sturner allegedly said that between Friday and Monday, it’s “hoodlum weekend” on the South Side of Chicago, and that police are “the only ones between that turning into a real war zone and keeping it where it’s kind of at.”
From 2014 to 2017, Black applicants accounted for only 1.4 percent of the 2,700 mortgage requests fielded by the lender in the Chicago market, compared to 9.8 percent of applications taken by its competitors, the CFPB alleged.
The case attracted national attention, in part because of arguments that Sturner’s free speech rights were under attack. A public interest law firm, The Pacific Legal Foundation, helped defend Townstone in court. The Competitive Enterprise Institute argued in a Wall Street Journal op-ed that in going after Townstone, “the CFPB is signaling that it may attempt to punish anyone who complains about neighborhood crime.”
The case dragged on for more than four years before Townstone settled in November, without admitting or denying the allegations against it.
“Townstone settled to escape the crushing burden of many more years in litigation,” Pacific Legal Foundation attorney Steve Simpson, one of Townstone’s lawyers, said in a statement. “Now we know that CFPB knew — or should have known — it had no case and targeted Townstone for its speech. Justice demands that this settlement be vacated.”
In its motion to vacate the settlement, attorneys for the CFPB said its internal review of the case was prompted by two executive orders issued in January by President Trump.
Executive Order 14149, “Restoring Freedom of Speech and Ending Federal Censorship” directed agency heads to “identify and take appropriate action to correct past misconduct by the Federal Government related to censorship of protected speech.”
Executive Order 14147, “Ending the Weaponization of the Federal Government,” accused the Biden administration of engaging in “a systematic campaign against its perceived political opponents … in the form of investigations, prosecutions, civil enforcement actions, and other related actions.”
“Pursuant to the President’s directive, the Bureau’s new leadership undertook a review of agency records concerning recent enforcement actions, including this one,” CFPB attorneys said in their March 26 motion to vacate the settlement. “The Bureau discovered within its internal case files indications that the Bureau commenced and continued its investigation and litigation without a substantial predicate of actionable facts and targeted codefendants Townstone and Townstone President and CEO, Barry Sturner, based on constitutionally protected speech.”
The CFPB used audio analytics mining software app, Nexidia, to comb through more than 78 hours of AM radio programs and podcasts published on social media, they said, identifying six comments totaling 16 minutes that CFPB staff determined “could be interpreted as inappropriate, incorrect, or insensitive.”
“This was a flagrant misuse of government resources to destroy a small business that did nothing wrong,” Bishop, Vought’s deputy at the OMB, said in a statement. “For the crime of protected political speech, this firm was targeted and harassed for years by this rogue agency. We are righting this wrong and protecting the First Amendment.”
Speech, or advertising?
The CFPB had maintained that the speech in question was not protected by the First Amendment because it was advertising. But that issue had yet to be ruled on when the case was settled.
The core issue in the case was whether the CFPB’s interpretation of Regulation B — the language drafted by regulators to implement the Equal Credit Opportunity Act (ECOA) — goes beyond the intent of Congress in passing the legislation in 1974 and in updating through amendments over the years.
Attorneys for Townstone scored a win in February 2023, when U.S. District Court Judge Franklin Valderrama agreed with their position that the ECOA only prohibits discrimination against actual loan applicants — not “prospective applicants.”
But the U.S. Court of Appeals for the Seventh Circuit disagreed with that interpretation, sending the case back to Valderrama’s court, the U.S. District Court for the Northern District of Illinois, in July.
Attorneys litigating the case notified the court on Oct. 22 that they had “entered settlement negotiations in earnest,” and on Nov. 1 — four days before the 2024 presidential election — entered a proposed settlement with the court.
Trump was reelected on Nov. 5, and Judge Valderrama approved the settlement two days later.
Marx Sterbcow, one of the attorneys who represented Townstone, said the Townstone “settled in ruin, paying $105,000 it couldn’t afford. The company is now gone, a victim of agency overreach.”
“For Barry Sturner, his family, and Townstone’s employees, the damage is personal,” Sterbcow posted on LinkedIn Wednesday. “The CFPB’s baseless claims sullied their reputations—labels that stuck despite their innocence. Today’s motion, which I urge the court to grant swiftly, starts to correct that by vacating the judgment and refunding the penalty.”
Judge Valderrama on Wednesday granted Paoletta and other attorneys representing the CFPB standing to appear before his court in Illinois, but minutes of the hearing noted that, “At this time, the case remains closed.”
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