A mortgage lender who operated primarily in the Chicago area had advertised through programs on the radio and in podcasts that discussed mortgage loans. In those programs, the owner of the mortgage lender and an employee would banter about various other topics. There were several instances in which they described areas with a majority Black population as being dangerous and suggested that callers from Black neighborhoods did not spend their money wisely. Moreover, the CFPB established that the mortgage lender had received considerably fewer applications from Black potential customers. The Equal Credit Opportunity Act (ECOA) provides that an applicant is “any person who applies to a creditor directly for an extension, renewal, or continuation of credit, or applies to a creditor indirectly by use of an existing credit plan for an amount exceeding a previously established credit limit.” 15 U.S.C. § 1691a(b). A regulation (Regulation B) promulgated by the CFPB provides “Discouragement. 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.” 12 C.F.R. § 202.4(b). The CFPB brought action against the mortgage lender alleging it had discouraged Black prospective applicants in violation of Regulation B. The district court held, however, that discouraging prospective applicants was not prohibited by the ECOA. The CFPB appealed.
In Consumer Fin. Prot. Bureau v. Townstone Fin., Inc., 107 F.4th 768 (7th Cir. 2024), the circuit court summed up its duty “to determine whether Regulation B’s prohibition on the discouragement of prospective applicants is consistent with the ECOA.” To answer this question, the court looked at the ECOA as a whole. Under the ECOA, Congress provided that the Board (now the CFPB, as a result of the Dodd-Frank Act) could prevent “circumvention or evasion" of the law. 15 U.S.C. § 1691b(a). That provision convinced the court that Congress intended the ECOA to be “construed broadly.” In addition, Congress later amended the ECOA’s civil liability provisions to provide cases be referred to the Attorney General when the agency thought a creditor “had engaged in a pattern or practice of discouraging . . . applicants for credit in violation . . . of this title.” 15 U.S.C. §e(g). That, the Seventh Circuit concluded, “confirmed” that discouraging applicants from applying for loans was within the actions prohibited by the ECOA. The mortgage lender had argued that its speech was protected by the First Amendment, but the district court had not reached that issue. The circuit court reversed and remanded the case to the district court, with instructions to address the First Amendment issue if Touchstone raised it again.
By The Editors