On June 14, 2023, the Consumer Financial Protection Bureau (CFPB) filed its opening brief in its appeal of a U.S. district court’s decision in the CFPB’s enforcement action against Townstone Mortgage (Townstone). The CFPB’s brief argues that the Seventh Circuit should reverse the district court’s holding that the Equal Credit Opportunity Act’s (ECOA) prohibition against redlining only extends to applicants and does not reach prospective applicants.
As previously covered by Consumer Finance Insights, the CFPB’s enforcement action against Townstone alleged the non-bank mortgage company violated ECOA and Regulation B, its implementing regulation, by making statements that would improperly discourage prospective borrowers from applying for a mortgage. The U.S. District Court for the Northern District of Illinois dismissed the CFPB’s lawsuit on the grounds that ECOA only reached applicants, not prospective applicants.
In its brief, the CFPB makes two key arguments as to why the district court’s ruling should be reversed.
First, the CFPB argues that the district court’s ruling was improper because Congress has “clearly spoken” as to whether prospective applicants are covered under ECOA. Though “prospective applicants” is not included in the text of the statute, the CFPB argues that Congress’s failure to revise ECOA to repudiate the language of the CFPB’s Regulation B—which does include “prospective applicants”—means Congress by its passivity has shown an intent to protect prospective applicants under ECOA.
Next, the CFPB argues that even if the court finds that Congress has not clearly spoken on whether ECOA protects prospective borrowers, such protections are consistent with the intent of the statute. Specifically, the CFPB argues that Regulation B’s prohibition on the discouragement of prospective applicants is a reasonable interpretation of ECOA because it supports ECOA’s purpose of prohibiting discrimination in credit transactions. The CFPB argues that without a allowing a prohibition on discouraging prospective applicants, the court would thwart ECOA’s goals and allows companies to discourage applicants on the basis of protected categories, like race or sex, and thus limiting the pool of actual applicants in a discriminatory fashion.
The Federal Trade Commission (FTC) has also filed an amicus brief in support of the CFPB’s appeal, as have consumer groups including the National Consumer Law Center and National Fair Housing Alliance.