Townstone Financial, a mortgage broker located in Chicago, and the Consumer Financial Protection Bureau (CFPB) have agreed to terms to resolve allegations of redlining and violations of the Equal Credit Opportunity Act (ECOA).

In a proposed settlement filed with U.S. District Court for the Northern District of Illinois – Eastern Division on Nov. 1, Townstone agreed to pay a total civil money penalty of $105,000 to the bureau.

The mortgage broker also agreed to:

• Maintain a compliance management system consistent with guidance provided in the bureau’s supervision and examination manual and is reasonably designed to ensure Townstone’s operations comply with ECOA.
• Create, implement, and maintain policies and procedures to test Townstone’s compliance with the ECOA.
• Require ongoing education and training in applicable federal consumer protection laws and the terms of the settlement for all appropriate employees, with training tailored to individual job duties and other roles within the company.

This settlement came without Townstone confirming or denying the allegations initially brought by the CFPB in 2020. In 2023, a judge for the U.S. District Court for the Northern District of Illinois granted Townstone’s motion to dismiss the case, holding the bureau had overextended its statutory authority beyond Congress’ intentional delegation by attempting to imbue pre-applicants for credit with ECOA protections. The CFPB appealed, and in July, the Seventh Circuit Court of Appeals overturned the lower court, referring to Congressional records to discern legislative intent.

“The Consumer Financial Protection Bureau and Townstone Financial have agreed to end the litigation and settle the case for a minimal amount of money and the CFPB has dropped Barry Sturner [Townstone’s CEO and owner] individually with prejudice from the litigation,” Marx Sterbcow, managing attorney at the Sterbcow Law Group, posted on LinkedIn. “Would have loved to have won the case in court but a minimal amount of money made sense for everyone to get rid of this absurd lawsuit. Congrats to Barry Sturner and look forward to the judge signing off on this.”

Pacific Legal Foundation (PLF) Director of Separation of Powers Litigation Steve Simpson, counsel who represented Townstone and Sturner pro bono throughout the proceedings, said this was a case that should never have been brought.

 “Unfortunately, the federal government possesses vast resources and the power to destroy lives and livelihoods, so settling is often the best approach for anyone facing a lawsuit of this kind,” Simpson said in a release.

“My family and I are relieved to finally put this nightmare behind us,” Sturner said. “The last six years have taken a toll on all of us.”

The CFPB also issued a press release on the matter.

“The CFPB’s lawsuit against Townstone Financial included a major appellate court victory that makes clear that people are protected from illegal redlining even before they submit their application,” CFPB Director Rohit Chopra said. “The CFPB will continue to prosecute those who engage in modern-day redlining.”