You may have heard that the CFPB suffered a major setback in court last month in a case called CFPB v. Townstone Financial Inc. and Barry Sturner. The Bureau alleged “that Townstone violated the Equal Credit Opportunity Act (ECOA); its implementing regulation, Regulation B; and the Consumer Financial Protection Act (CFPA).
For years, Townstone drew almost no applications for properties in majority-African-American neighborhoods located in the Chicago-Naperville-Elgin Metropolitan Statistical Area (Chicago MSA) and few applications from African Americans throughout the Chicago MSA. The Bureau alleged that Townstone engaged in discriminatory acts or practices, including making statements during its weekly radio shows and podcasts through which it marketed its services that discouraged prospective African-American applicants from applying for mortgage loans; discouraged prospective applicants living in African-American neighborhoods in the Chicago MSA from applying for mortgage loans; and discouraged prospective applicants living in other areas from applying for mortgage loans for properties located in African-American neighborhoods in the Chicago MSA.
The court ruled that ECOA does not cover applicants for credit. It said “the plain text of the ECOA … clearly and unambiguously prohibits discrimination against applicants, which the ECOA clearly and unambiguously defines as a person who applies to a creditor for credit … Congress has directly and unambiguously spoken on the issue at hand and only prohibits discrimination against applicants.”
Many in the industry have cheered the decision as a win for the little guy (Townstone only has six full time employees) and a pushback against mission creep at the Bureau. It may be a win for this one small mortgage company, but it should not change any mortgage company compliance programs. The CFPB does have enforcement authority for ECOA, and there are other tools available to regulators, individuals and consumer groups.
The Fair Housing Act prohibits discrimination in housing. It is specific to housing and housing finance and is administered by the Department of Housing and Urban Development. The Fair Housing Act has two key prohibitions that could be relevant to similar cases:
“It is illegal discrimination to take any of the following actions because of race, color, religion, sex (including gender identity and sexual orientation), disability, familial status, or national origin:
- Otherwise make housing unavailable
- Discourage the purchase or rental of a dwelling”
The Fair Housing Act also allows individuals or groups to file suit for alleged violations. The Bureau has a memorandum of understanding with HUD to cooperate on Fair Housing Act enforcement. It may require more coordination to get the government agencies to cooperate, but enforcement is not going away. Neither should your fair lending program.
For this series, I am focused on sharing snippets of the critical compliance issues we are facing as an industry. For more details, please email me at jjaffee@housingfinancestrategies.com.