The saga continues in the lawsuit brought by the Consumer Financial Protection Bureau (CFPB) against Townstone Financial, Inc. and its owner, Barry Sturner, as both parties filed responses to each other’s motions to compel. The bureau brought this complaint in 2020, asserting the company and Sturner violated the Equal Credit Opportunity Act (ECOA) and Regulation B.

Prior to the CFPB’s filing, no complaints involving discriminatory conduct had ever been filed against Townstone. Instead, the CFPB bases part of its argument and complaint on two theories, one known as the Equal Time Advertising Rule (EqTar) and the other the Demographic Equality Employment Quota Rule (DEEQR). The bureau is alleging Townstone failed to advertise to a specific racial group in violation of EqTar and failed to utilize hiring practices based on the Metropolitan Statistical Area (MSA) where the company operated in violation of DEEQR.

Townstone’s and Sturner’s attorneys continued to argue the bureau is overreaching its statutory authority and threatens Sturner’s First Amendment rights. The bureau said the information Townstone is requesting is outside what can be compelled as part of discovery.

Townstone and Sturner previously filed a motion requesting the court order the CFPB to search for and produce documents relating to its “interpretation” of statements made by Townstone and Sturner that were part of the bureau’s amended complaint.

“But defendants misunderstand what is at issue in this case,” CFPB’s attorneys wrote in its brief in opposition to Townstone’s motion to compel. “The bureau’s primary claim concerns whether a reasonable potential credit applicant would have been discouraged by Townstone’s business practices and defendants’ statements. How individual bureau employees ‘interpreted’ those statements is irrelevant to this inquiry. Further, defendants’ suggestion that the bureau filed this lawsuit because it disagreed with the content of defendant Sturner’s speech or his general political views is baseless and in no way supports a burdensome fishing expedition into privileged documents.”

Specifically, Townstone and Sturner made requests for documents “concerning the political leaning, political viewpoints, or social commentary of Townstone and/or Townstone’s staff” or “concerning the political leaning or viewpoints of the AM-radio stations in the Chicago MSA.”

This is the second time they’ve made this request, as these documents also were listed in an earlier motion to compel. However, the bureau objected to the first request related to this subject matter, stating documents “addressing the opinions of defendants or defendants’ employees as to specific political candidates or parties…seeks non-relevant information that has no relationship to the allegations in the [bureau’s] complaint.”

Because the information sought was considered non-relevant, the bureau did not conduct a search to determine if any such documents even existed.

The bureau stated the present motion should be denied because even if the materials they seek did exist, it would not make any material issue more or less probable.

“Even if there were some potential relevance to the documents sought, the requests are invalid both because any potential value of the requested documents is outweighed by the significant burdens associated with searching for and producing the documents, and because defendant’s requests are nothing more than impermissible fishing expeditions.”

In the instant motion, defendants argued these documents are relevant because documents referring to the defendants’ or radio stations’ alleged “political and social views” are material to whether defendant’s statements are sufficiently discouraging to meet the regulatory threshold, and the documents might show whether the bureau’s enforcement of Regulation B is impermissibly content- and viewpoint-based/whether Regulation B is unconstitutionally vague.

The bureau asserted the relevant question is whether the defendants’ statements and overall business practices would discourage, on the basis of race, prospective applicants from applying for credit with Townstone, not just anyone. This applies the reasonable person standard to prospective applicants in a prohibited-basis group, not just anyone, and “certainly not bureau employees.”

Because of this, the opinions of individual bureau employees are immaterial to the claims, the CFPB said.

“Similar to how the bureau cannot expect to prove its case by calling bureau employees to testify about why they found certain statements discouraging, defendants are not entitled to documents that relate to individual employee viewpoints,” the bureau wrote. It also provided examples where courts have stated similar opinions in cases brought against other agencies and government bodies.

The bureau also asserted the requested documents would be otherwise protected by the attorney-work-product doctrine, attorney-client privilege, or the deliberative-process privilege.

On the same day the bureau filed the above response, Townstone and Sturner also filed a response to the CFPB’s motion to compel Sturner’s personal communications.

“This is hardly an unreasonable objection. Among other things, this case concerns Townstone’s statements to prospective applicants, not Mr. Sturner’s personal affairs or conversations with friends and family,” the defendants stated. “But even if CFPB’s requests sought relevant information, they are absurdly overbroad, as they would cover virtually any comment about any neighborhood or geographic area and any discussion of issues such as race, religion, gender, sex, and national origin, as it is virtually impossible to discuss any of these issues without using generalizations.”

In addition to being overly broad, the defendants also argued the request threatens the privacy and First Amendment rights not just of Sturner, but of his friends, acquaintances, or family members who had discussions with Sturner on certain topics.

The response provided three reasons why the CFPB cannot show the value of the requested information is proportional to the needs of the case when balanced with the burden or expense of providing said documentation:

• Sturner’s private conversations cannot be relevant to whether Townstone’s public statements would discourage a reasonable person from seeking credit. Regulation B concerns statements made to applicants or prospective applicants, not the private conversations between Sturner and his friends and family. Applicants and prospective applicants would not be privy to these private conversations, and these conversations had no bearing on Townstone’s on-air statements.
• The requests are wildly overbroad, especially since the bureau has already obtained a “giant amount of information” from the defendants. Sturner’s private communications during the relevant time period, tens of thousands of text messages, would be burdensome and costly to search.
• Compelling the production of Sturner’s private conversations is a violation of his First Amendment rights, as it causes a chilling effect for Sturner and those communicating with him resulting in self-censorship.

Regulation B only applies to “oral or written statements” made to “applicants or prospective clients,” the defendants stated. Because Regulation B only regulates statements, it cannot apply to conduct, acts, or practices, or the alleged failure to take a certain action.

“While CFPB also alleges that Townstone failed to draw enough loan applications from African Americans and failed to hire African-American loan officers, these allegations cannot form the basis of separate claims under either Regulation B or ECOA,” the defendants stated. “They are not statements or even actions, but only alleged inaction, and neither Regulation B nor ECOA requires creditors to lend to or hire from particular segments of the population.

“Indeed, the official commentary to Regulation B makes clear that a creditor ‘may affirmatively solicit or encourage members of traditionally disadvantaged groups to apply for credit,’ but nothing in Regulation B or ECOA requires a creditor to do so. [emphasis in original]”

Defendants stated they made the same argument in its motion to dismiss (which is still pending), and the CFPB responded it was not claiming the statutes created an affirmative obligation to market or hire from any particular population or racial group.

Rather, the most likely explanation for Townstone’s disparity in both the number of African American applicants and African American employees is the company’s discouraging statements. The defendants pointed out CFPB’s own words described alleged evidence of discouragement, which is not discouragement itself.

“The point is that the only actual legal claim at issue is the claim that Townstone violated Regulation B by doing what Regulation B prohibits, which is making discouraging statements,” the defendants stated. “And the question for purposes of this motion is therefore whether Mr. Sturner’s personal communications are relevant to that claim. The answer is ‘no.’ And the reason is straightforward.

“Whatever Mr. Sturner’s personal conversations reveal, they cannot impact whether on-air statements ‘would discourage’ a ‘reasonable’ ‘prospective applicant’ from seeking credit. The meaning or impact of the statements will not change no matter what Mr. Sturner said in private conversations to friends and family.”

If you would like to read previous coverage of this case, click here.