By Jonathan Stempel
(Reuters) -A federal appeals court made it easier for the U.S. Consumer Financial Protection Bureau to police a form of housing discrimination known as redlining, reviving the agency's first such case against a non-bank mortgage lender.
Reversing a lower court ruling, the 7th U.S. Circuit Court of Appeals said the CFPB can try to prove that Chicago-based Townstone Financial and its co-founder Barry Sturner violated the federal Equal Credit Opportunity Act by discouraging Black people from applying for mortgage loans.
Circuit Judge Kenneth Ripple wrote for a three-judge panel on Thursday that a CFPB regulation for enforcing the law applied not just to mortgage applicants, but also to discouraged prospective applicants.
Redlining occurs when lenders deny or discourage mortgage loans based on race, color, or national origin.
The CFPB sued Townstone and Sturner in July 2020, citing statements made on Townstone's AM radio show and podcast "The Townstone Financial Show," known as a long-form commercial advertisement.
These included where Sturner said Chicago's South Side was "hoodlum weekend" between Friday and Monday, and another host discussing a mainly Black suburb said "you drive very fast through Markham ... and you don't look at anybody or lock on anybody's eyes."
Townstone's practices led to its receiving fewer mortgage applications from Black applicants and for homes in majority-Black neighborhoods than its Chicago-area peers, the CFPB said.
The defendants said the CFPB lawsuit was a means to censor their speech.
But Ripple, an appointee of Republican President Ronald Reagan, said "it was clear" that Congress intended that the Equal Credit Opportunity Act be construed broadly, with a goal of ending discrimination in loan applications.
"The term 'applicant' cannot be read in a crabbed fashion" to exclude discouraged applicants, Ripple wrote. "Congress well understood that 'any aspect of a credit transaction' had to include actions taken by a creditor before an applicant ultimately submits his or her credit application."
Oliver Dunford, a lawyer for the conservative nonprofit Pacific Legal Foundation which represented the defendants, said "we're disappointed in the decision," which "ignored completely Townstone's First Amendment arguments. We are considering our options for further review."
CFPB Director Rohit Chopra posted on X in response to the decision: "The CFPB is working hard to root out violations of longstanding federal laws that prohibit discrimination in lending."
The 7th Circuit returned the case to U.S. District Judge Franklin Valderrama in Chicago, who dismissed it in February 2023.
The case is CFPB v Townstone Financial Inc et al, 7th U.S. Circuit Court of Appeals, No. 23-1654.