7th Circuit Reverses Dismissal of Townstone Case, Renewing CFPB’s Attempt to Expand ECOA to Prospective Applicants

A three-judge panel for the Seventh Circuit Court of Appeals recently overturned a district court’s dismissal of a CFPB action against a nonbank lender, Townstone Financial, Inc., and its owner involving an alleged ECOA violation based on discouragement of prospective applicants.

In the underlying action, the CFPB alleged that Townstone violated ECOA and its implementing Regulation B by making comments on a radio show that allegedly discouraged prospective minority applicants from applying for a loan.  Townstone argued that Regulation B’s stated applicability to “prospective applicants” exceeded the statutory scope of ECOA, which refers only to “applicants.”  The district court applied a Chevron analysis to the CFPB’s interpretation of ECOA, which it found unambiguously refers only to “applicants,” not “prospective applicants,” and dismissed the CFPB’s case.

On appeal, the Seventh Circuit panel overturned the district court’s ruling, finding that Regulation B’s prohibition on discouraging prospective applicants is consistent with the text and purpose of ECOA when read as a whole and with Congress’s grant of broad statutory authority to implement regulations to carry out ECOA’s purpose.  The Seventh Circuit panel also noted that ECOA’s stated applicability to “any aspect of a credit transaction” would include actions taken by a creditor before the submission of a loan application.

The Seventh Circuit panel remanded the case to the district court for further proceedings.  The panel noted that Townstone may renew on remand a previously unaddressed argument that Regulation B violates the First Amendment, both facially and as applied to its radio show appearance. 

WBK’s previous coverage of this case can be found here and here.