Chicago City Wire

A victory in the appeal of a lawsuit filed by the Consumer Financial Protection Bureau (CFPB) alleging discrimination by a mortgage broker could result in unprecedented government restraint in speech by all in the lending business.

Jessica Thompson, an attorney with the Pacific Legal Foundation (PLF) representing a small mortgage brokerage in Chicago – where the case began – said that that if the CFPB if successful in its appeal then the agency could arbitrarily decide what speech is “disparaging or discouraging those from borrowing.”

“It would be clear violation of First Amendment rights,” she told Chicago City Wire.

In the case, which CFPB lost in U.S. district court, the agency went after Townstone Financial, Inc., a non-bank mortgage firm and its owner Barry Sturner for making “statements that would discourage African-American prospective applicants from applying for mortgage loans.”

The PLF said that the Sturner comments on a radio show and podcasts amounted to ten minutes of airtime out of about 10,000 minutes over a four-year period.

“Like every Chicagoan, Barry Sturner is concerned about crime,” the PLF said in a statement. “He joins the mayor, among many others, in describing the South Side as a ‘war zone’ and using the term ‘hoodlum’ in discussions of crime. It is also true that some high-crime areas in Chicago are majority African American. But juxtaposing these facts does not turn a discussion of crime into a series of disparaging comments about African American neighborhoods.”

What the CFPB doesn’t have are any examples of Townstone discouraging anyone from applying for a loan, Thompson said. In fact, the company is on record as loaning to African Americans albeit not at the same rate as larger mortgage companies.

The agency rather based its legal arguments on Regulation B of the Equal Credit Opportunity Act (ECOA), which extends the law’s anti-discriminatory provisions to prospective applicants.

But In February Judge Franklin Valderrama of U.S. District Court for the Northern District of Illinois ruled that “because the Court finds the ECOA unambiguously prohibits discrimination of ‘applicants, and not ‘prospective applicants,’ the Court does not assess Regulation B for the soundness of its policy, the need for it, or even whether it is reasonably related to he ECOA objectives.”

The bottom line the PLF says that Townstone has not discriminated against anyone, and the CFPB has not alleged that it has.

“Instead, the CFPB contends that Townstone’s radio statements ‘would discourage’ prospective applicants from seeking credit," its statement said. "Who are these ‘prospective applicants’? According to the CFPB, anyone who may have heard Townstone’s radio show and may have been ‘discouraged’ from applying for a loan. But no one has complained to Townstone, and the CFPB has named no prospective applicants who were discouraged from applying.”

The CFPB appealed to the Seventh Circuit on April 3. Comments from the agency are due by May 15.