The Consumer Financial Protection Bureau (CFPB) is responsible for the enforcement of the Equal Credit Opportunity Act (ECOA), which prevents lenders from discriminating against someone based upon their “sex or marital status . . . race, color, religion, national origin, [or] age.” In the summer of 2020, the CFPB sued a mortgage lender, claiming that the lender discriminated against African American prospective applicants. The lender had been hosting a podcast to advertise its business. However, in this podcast, the hosts often made statements discouraging African Americans from applying for a home loan. These statements varied from talking poorly of certain neighborhoods (which were predominantly African American) to making fun of African Americans that would call into the show. Furthermore, upon the CFPB’s investigation, it found that the lender consistently received fewer applications from African American applicants and fewer applications for loans in areas that were 80% or more African American. However, the lender argued (and the lower court agreed) that ECOA does not apply to merely “prospective” applicants. The CFPB disagreed and appealed.
In Consumer Financial Protection Bureau v. Townstone Financial, Inc., 107 F.4th 768 (7th Cir. 2024), the Court of Appeals held that ECOA does, in fact, apply to prospective applicants and that the CFPB can punish lenders that discriminate against those applicants. In coming to this decision, the court analyzed the history of ECOA, its various provisions, and notes of Congressional deliberations. The court found that there is a provision of ECOA that grants very broad authority and discretion to the CFPB when carrying out the purposes of the act. The court then compared this language to similar statutes (such as the Truth in Lending Act) to support its broad interpretation. This was important because it affirmed the rule adopted by the CFPB that explicitly states, “[a] creditor shall not make any oral or written statement, in advertising or otherwise, to applicants or prospective applicants that would discourage on a prohibited basis a reasonable person from making or pursuing an application.” Thus, the court found that not only does the above-quoted statement fall within ECOA, but the lender also violated the provision by discriminating against African American prospective clients.
By Maycee Redfearn, [email protected]
Edited By Ashley Boyce, [email protected]
Edited By Hayden Mariott, [email protected]