Bloomberg News
A federal judge rejected the Trump administration’s effort to undo a redlining settlement between the Consumer Financial Protection Bureau and a Chicago mortgage lender whose CEO made comments on a talk-radio show that a court found discouraged potential Black homebuyers from applying for home loans.
On Thursday, District Court Judge Franklin U. Valderrama, wrote in a 15-page ruling that the Trump administration’s assertion that the CFPB pursued a redlining case “because it disliked Townstone’s speech,” was both “breathtaking,” and “unpersuasive.”
The case centered on whether Barry Sturner, Townstone’s CEO, had discouraged prospective Black applicants from applying for mortgage loans, in violation of the Equal Credit Opportunity Act and Regulation B — which prohibit creditors from discriminating on the basis of sex, race, color, religion, national origin, age or marital status.
Valderrama, a Trump appointee, rejected the CFPB and Townstones’s joint motion, filed in March with the U.S. District Court for the Northern District of Illinois, to set aside a $105,000 judgment and dismiss the redlining case with prejudice.
Instead, the judge sided with 14 nonprofit groups focused on fair housing and consumer protection that opposed the motion to vacate that settlement, finding that dismissing the case based on the current agency leadership’s view of a prior agency leadership’s decisions would unravel scores of legal decisions with every election.
“Granting the Motion would erode public confidence in the finality of judgments,” Valderrama wrote. “It would set a precedent suggesting that a new administration could seek to vacate or otherwise nullify the voluntary resolution of a case between a prior administration (or the same administration, but under different agency leadership) and a private party merely because its leadership thought the original litigation unwise or improperly motivated. That is a Pandora’s box the Court refuses to open.”
The CFPB did not respond to a request for comment. The agency, led by acting CFPB Director Russell Vought, is expected to file a motion for reconsideration, legal experts said.
“We’re obviously disappointed by the judge’s decision,” said Richard Horn, co-managing partner at Garris Horn LLP and a former CFPB senior counsel and special advisor, who worked on the case.
Sturner said in an email that he was “obviously disappointed,” and hoped that Vought would release more documents in the case “so the public can judge for themselves as to what occurred.”
“In the end, no matter your politics, it’s a beacon of light that the acting Director of the CFPB Russel Vought put time and effort into investigating a case that should have never seen a court room and for that we can all be proud that sometimes even the Government tries to make amends for a mistake they made,” Sturner said in the email to American Banker.
In November, Sturner agreed to settle the case for $105,000 after a three-judge panel of the U.S. Court of Appeals for the 7th Circuit ruled against him, stating that Congress meant ECOA to broadly prohibit discrimination with respect to any credit transaction. That settlement was agreed to by former CFPB Director Rohit Chopra under the Biden administration.
But in March, once the Trump administration took over the agency and reviewed the case,
the CFPB’s new Chief Legal Officer Mark Paoletta, claimed the bureau had engaged in misconduct and should never have brought the case. In March, Vought issued a rare press release on Townstone, stating: “A small business complained about skyrocketing crime in Chicago, CFPB made their life hell.”
The judge noted that the case was filed in 2020 by Kraninger, a Trump appointee.
“Recall that the investigation and initiation of the lawsuit occurred during President Trump’s first term, not under some previous administration,” Valderrama wrote.
“Now, current CFPB leadership under the second Trump administration, in an act of legal hara-kiri that would make a samurai blush, falls on the proverbial sword and attests that the lawsuit lacked a legal or factual basis,” he continued. “That’s not all, as current CFPB leadership lambasts CFPB leadership under the first administration for trampling Defendants’ First Amendment rights.”
The CFPB’s 2020 lawsuit cited comments that Sturner made on the radio as evidence of discrimination. He described a Jewel-Osco grocery store as “Jungle Jewel,” and claimed the South Side of Chicago between Friday and Monday was “hoodlum weekend.” The agency also claimed that from 2014 to 2017, Townstone received fewer mortgage applications from Black applicants compared to its peers, fewer mortgage applications for properties in neighborhoods with a high-Black population, and fewer mortgage applications for properties in neighborhoods with a majority of Black residents.
Valderrama denied the CFPB’s joint motion for relief under rule Rule 60(b)(6) of the Federal Rules of Civil Procedure, which allows a court to grant relief from a final judgment but only in cases that present “extraordinary circumstances.”
“It was only after a change at the leadership at CFPB that CFPB now seeks — along with Defendants — to unwind the very settlement and consent decree that it negotiated,” the judge wrote.
The nonprofit groups had raised concerns about the motion that included a declaration by Dan Bishop, a senior advisor at the Office of Management and Budget, who was detailed part time to the CFPB, and who alleged that Sturner and Townstone were targeted for their political views, and that his comments on the radio were “constitutionally protected speech,” under the First Amendment.
“To be sure, the facts of the Motion are unusual and the Motion, therefore, unprecedented,” Valderrama wrote. “Having considered the arguments presented, the issue before the Court is whether the Parties have met their substantial burden of showing an extraordinary circumstance that justifies vacatur of the final judgment and consent decree. The Court finds they have not.”
He noted that the CFPB was unable to cite any case involving a joint Rule 60(b)(6) motion to undo a final settlement rather than to facilitate one. Moreover, the Supreme Court recently reaffirmed the principle of a “very strict interpretation of Rule 60(b),” and that the rule applies only in extraordinary circumstances because it “is essential if the finality of judgments is to be preserved,” Valderrama wrote.
“All in all, balancing the benefits of vacatur against the public interest in the finality of judgment, the Court finds that the latter outweighs the former,” the judge wrote.
