The Consumer Financial Protection Bureau (CFPB) and the legal team for Chicago mortgage broker Townstone Financial and owner Barry Sturner filed a joint motion asking the court to dismiss all claims with prejudice against Townstone and Sturner and to vacate the settlement in CFPB v. Townstone Financial, Inc., et al., which resolved allegations of redlining and violations of the Equal Credit Opportunity Act (ECOA) against Townstone.
That includes returning the $105,000 civil penalty Townstone paid to the bureau.
In a release about the motion filed in the U.S. District Court for the Northern District of Illinois – Eastern Division, the CFPB claimed misconduct by prior CFPB leadership in the complaint filed during President Donald Trump’s first term, calling the Townstone case “abusive,” “unjust” and “a seven-year harassment saga.”
“Using a ‘redlining screen’ based on an arbitrary number of mortgages, CFPB set out to destroy a small Midwest firm with about 10 employees and a radio program called Townstone Financial. After a thorough review, the CFPB is seeking to make Townstone whole by returning the six-figure penalty they were forced to pay,” the CFPB release read.
“CFPB abused its power, used radical ‘equity’ arguments to tag Townstone as racist with zero evidence, and spent years persecuting and extorting them – all to further the goal of mandating DEI in lending via their regulation by enforcement tactics,” Acting CFPB Director Russ Vought said. “The more we uncover at CFPB, the more we see how this agency was weaponized against targeted Americans.”
According to the joint motion for relief, “there were significant undisclosed problems with the bureau’s treatment of this case, resulting in unmerited investigation and litigation and the infringement of the defendants’ First Amendment rights.”
“Once new CFPB leadership undertook the review of the history of this case, it became clear from the totality of internal evidence that this case has suffered from deficiencies on the merits and Townstone was targeted because of its protected speech,” the motion stated. “The bureau identified this small business and initiated investigation and then litigation under the ECOA without substantial evidence of discrimination and based on the expressed political views of Mr. Sturner.”
Office of Management and Budget (OMB) Deputy Director Dan Bishop, who has been assigned to the CFPB, filed a declaration in support of the joint motion.
“The documents I reviewed make clear that the CFPB lacked a sufficient factual predicate for the seven-year saga to which it subjected Defendant Townstone,” Bishop wrote in the declaration. “Those documents also make clear that agency lawyers misled their superiors in enforcement decisions and were affected by animus toward the publicly expressed viewpoints of Townstone’s owner.”
Bishop also noted that “one year after filing suit, CFPB contracted to pay $1.38 million to ‘consumer behavior experts’ to survey consumers about Townstone’s broadcast remarks.”
The CFPB said the investigation into Townstone was not based on any complaints against the broker or on discriminatory conduct, but on “pure quota-style statistics.”
“CFPB ran a ‘redlining screen’ that caught 22,000 companies and then winnowed it down to a handful with unexplained ‘qualitative research,’” the release stated. “Townstone was targeted because it was a small firm (under 10 employees) and had a radio show that touched on political topics, making it easy for the CFPB to bully. To reiterate, no one came forward to complain about Townstone, they were ‘drawn out of hat’ by a computer model run by DEI-driven CFPB bureaucrats.”
The agency claimed the CFPB at the time “wanted a de-facto mortgage quota, a policy aligned with the views of radical DEI proponents like Robin DiAngelo and Ibram X Kendi.”
The release also referred to an internal memo by past CFPB lawyers that said “Townstone could be penalized $28,906 per day for four years, a total of $42,202,760 for alleged violations of civil rights law. All for 16 minutes of radio banter that were not racial in nature.”
Reaction to joint motion to vacate settlement
Sterbcow Law Group Managing Attorney Marx Sterbcow one of the attorneys who represented Townstone, posted on LinkedIn that the filing “exposes a stark truth: the agency targeted Townstone not for discrimination, but for its constitutionally protected speech. The result was catastrophic, shuttering a small, family-run mortgage lender. As counsel, we have long challenged the CFPB’s actions here. Today’s filings validate those concerns.”
“For Barry Sturner, his family, and Townstone’s employees, the damage is personal. 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,” Sterbcow continued.
Garris Horn co-Managing Partner Richard Horn, part of the Townstone legal team, told RESPA News it was clear to him, too, that Townstone was targeted by the CFPB because staff did not agree with what Sturner said on the radio and on a podcast, not because of any discriminatory action.
“They picked out a few statements, but as you can see from the filing, they also noted that the programs were overtly political and were often critical of the CFPB as well,” Horn said. “There was never any evidence that these statements or anything else Townstone did discouraged or discriminated against anyone, and their own investigation showed that. It was all about their dislike of the statements. They just didn’t like what was said on the Townstone programs and sued them because of it, and that violates the First Amendment.”
The Pacific Legal Foundation was also part of the Townstone legal team.
“For seven years, Townstone argued that the case against it was baseless and violated the First Amendment,” Pacific Legal Foundation attorney Steve Simpson said. “Townstone settled to escape the crushing burden of many more years in litigation. 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.”
“CFPB refused to produce information during the lawsuit concerning its investigation of Townstone and, unfortunately, the magistrate judge sided with CFPB in that dispute,” said Pacific Legal Foundation attorney Ashley Levine added. “If not for CFPB’s recent internal investigation, it is likely the information we now have would never have come to light.”
In an interview with RESPA News, Sterbcow pointed out that although then-CFPB director Kathy Kraninger filed the original complaint, the investigation started in 2017 under Richard Cordray.
Sterbcow got involved in the case in 2018 and after less than a year, he decided to take the case pro bono.
“I haven’t charged Sturner a nickel since 2019. That’s how much I felt this was really out of control and how much I believed in him and his innocence,” he said.
Both Horn and Sterbcow said the CFPB asking the court to vacate a settlement is unprecedented.
“The CFPB has never done anything like this before,” Sterbcow said. “Even in civil litigation, the information has to be so extraordinary and damning it causes the courts to unwind the settlement. It’s really rare for this to take place.”
Sterbcow lauded Vought for the way he handled the investigation into past CFPB actions, calling him “first class.”
“Before this motion was filed, Barry [Sturner] knew nothing about it,” he said. “Russ Vought called him and his wife and personally apologized, on behalf of the bureau, and at the same time thanked him, saying if he hadn’t fought the bureau, this would have never come to light and the government abuses could have continued.”
Horn said he found the CFPB’s willingness to revisit the case “encouraging.”
“Hopefully the staff there is looking at other past misconduct,” he said. “Ultimately, cleaning house like this will benefit and bolster the CFPB’s reputation in the future, so it can finally become the serious, mature agency the public needs.”
RESPA News has been following the Townstone case since 2019. You can read our previous coverage in RESPA News and The Title Report here:
Townstone Financial, CFPB redlining suit ends in settlement
Seventh Circuit overturns Townstone case referencing agency deference
Oral arguments heard in Townstone appeal
Arguments made in Townstone ECOA case
ACLU, other groups file amicus brief in Townstone case
CFPB appeals Townstone decision
Let’s talk Townstone: How a small broker beat the CFPB on redlining
‘That is the end of it’: Court dismisses CFPB redlining complaint against Townstone
Discovery motions continue in CFPB v. Townstone suit
CFPB, Townstone file responses to parties’ motions to compel
Townstone seeking industry help to fight CFPB
A year later, CFPB cites Townstone for ECOA violations
Mortgage company owner confirms identity in CFPB investigation
CFPB on verge of industry-changing lawsuit