A small Chicago mortgage company is asking the financial services industry for help in its fight against the Consumer Financial Protection Bureau (CFPB).

The bureau filed a lawsuit against Townstone Financial in July for alleged violations of the Equal Credit Opportunity Act and redlining.

Townstone filed a motion to dismiss the suit this week in U.S. District Court for the Northern District of Illinois. The company also has launched a website, Townstone Fights for Free Speech.com, seeking donations to the James Madison Center for Speech.

“The CFPB has taken the unprecedented step of filing suit against a small, three-person business accusing it of discrimination based on its political speech about the crime rate and in support of police in Chicago,” Townstone attorney Richard Horn of Garris Horn LLP said in an emailed statement. “Townstone is fighting back to protect its right to free speech and yours. While Townstone wants to fight, because it is such a small business, it is facing tremendous economic pressure to settle this case. Unfortunately, any settlement would have negative impacts on everyone’s right to free speech.”

Townstone is also represented by James Bopp Jr. of The Bopp Law Firm, Sean Burke of Mattingly Burke Cohen & Biederman LLP and Marx Sterbcow of The Sterbcow Law Group LLC.

Also see: A year later, CFPB cites Townstone for ECOA violations

Townstone is being charged with making statements during marketing ventures, including weekly radio shows and podcasts, that illegally discouraged prospective African American applicants from applying to the company for mortgage loans.

The CFPB also said the company’s public statements in those marketing vehicles engaged in “illegal redlining” by discouraging prospective applicants living in African American neighborhoods in the Chicago metropolitan statistical area from applying to Townstone for mortgages.

Townstone’s statement on the website accuses the CFPB of using fair lending laws to attack the First Amendment right to free speech of everyone in the financial services industry.

“The CFPB claims that several discussions on Townstone’s radio show and podcast relating to current events, such as the crime rate in Chicago and in support of the police, which lasted only a few minutes out of hundreds of hours of broadcasting, violated the Equal Credit Opportunity Act,” the statement said. “The CFPB wants to make it the law that speech about the crime rate in our cities is discriminatory against African Americans and illegal! Please donate to stop the CFPB.

“In addition, the CFPB says Townstone did not receive enough applications from African Americans despite Townstone’s business model which is to advertise on the largest Chicago AM radio stations seven  days a week, whose signal hits every Zip code in Chicagoland and reaches several other states. The programming on these stations ranges from all of the major Chicago sports teams’ broadcasts to normal every day talk radio.

“All of us have to understand that if Townstone has to settle because of the financial strain of this lawsuit, this dangerous CFPB legal theory that tramples on the First Amendment will filter down to businesses in the financial services industry and other industries. Please donate to stop the CFPB.”

Townstone’s attorneys alleged the CFPB is using its lawsuit to require:

• New hiring demographic quotas based on race and ethnicity
• Requirements to advertise specifically to every racial group and demographic
• An advertising “Equal Time” Rule requiring financial services companies to advertise based on the political leanings of each media outlet.

“Please understand that if Townstone has to settle, this CFPB legal theory will be used for hiring quotas and advertising based on politics in the financial services industry, and other industries,” the attorneys added on the website.

Townstone attorneys added that the settlement would mean:

• Business owners would be forced to advertise equally based on the political leanings of their media outlets. For example, if you are on Fox News, you would need to make sure your advertisements are on an equal amount of time on MSNBC or CNN.
• Business owners would be forced to advertise in areas based only on demographics rather than sound business judgment and profitability.
• Business owners would be forced to hire employees based on race and ethnicity rather than qualifications.

Townstone co-counsel are arguing the bureau was using the case to drive advertising away from conservative talk radio, and that the company did, in fact, make active efforts to reach minority audiences.

Townstone alleged the case is based entirely on the fact the company advertised primarily on AM-560, a Salem media radio station, and its owner and staff engaged in speech with which Democrats disagreed.

Townstone also claimed the lawsuit could impose a new Equal Time Rule for the industry’s marketing. The Equal Time Rule is a portion of the Communications Act of 1934 which provides that broadcast licensees must permit equal use of broadcast facilities to all legally qualified candidates for political office and that the broadcast licensee may not censor the candidates’ messages, and the action would establish similar practices as a determination for discrimination in advertising under ECOA.

The statement claims the CFPB referred the investigation, which began in 2017, to the Justice Department but that the department declined to pursue action. Townstone Financial advertised on a number of different radio stations in the Chicago market, including news talk stations AM-720 and AM-890 and sports talk station AM-670. At issue in the CFPB’s investigation, however, was Townstone’s advertising on news talk station AM-560, a conservative radio station.

Townstone also disputed the CFPB’s complaint which said that it did not employ an African-American loan officer, saying the company has employed an African American loan processor in the past, as well as other minority employees, including Hispanic loan officers and Asian employees.

Townstone disputed the CFPB’s allegations that the statements it referenced, which were made on the radio show, were racist. Rather, it said, “the comments are fact-based, citing facts about societal problems in the South Side of Chicago area with violence and the lack of adequate grocery stores.”

The CFPB alleged that Townstone drew fewer mortgage applications from African Americans during the time period that other lenders in the Chicago metropolitan statistical area (MSA). The complaint said analyses of Townstone’s mortgage-loan applications in the Chicago MSA, as compared to its peer lenders during the relevant period, showed disparities between Townstone and its peers that are “statistically significant.”

A CFPB spokesperson said the bureau does not comment on pending litigation.