The CFPB filed a joint motion seeking to vacate the settlement it reached with Townstone Financial and return a six-figure penalty the company paid after a seven-year enforcement action. The agency targeted the roughly 10-employee firm based on what officials now characterize as an 'arbitrary' redlining screen that flagged statistical disparities in mortgage lending to minority areas, without any customer complaints or evidence of discriminatory intent.
According to the CFPB's press release, the original investigation was triggered by a computer screening of 22,000 companies that identified Townstone based on a 'shortfall' of just 31 mortgage applications from majority-minority areas out of 876 total applications over three years. The agency also used audio mining software to analyze nearly 79 hours of Townstone's radio content, finding 16 minutes of commentary about local crime and political issues that officials deemed 'disconcerting' and potentially 'inappropriate, incorrect, or insensitive.'
The CFPB is now seeking court approval to dismiss the case entirely and refund the monetary penalty imposed on Townstone. Internal agency documents revealed that CFPB lawyers had calculated potential daily penalties of $28,906 for four years, totaling over $42 million, based on alleged civil rights violations. The company ultimately settled rather than face the protracted litigation costs against the federal agency.
The reversal represents a dramatic policy shift for the CFPB under the new administration, moving away from what officials characterized as 'regulation by enforcement' tactics focused on racial equity initiatives. The original enforcement action was part of broader CFPB efforts under former Director Rohit Chopra, who identified 'racial equity' as a 'cross-cutting priority' in 2022.
'CFPB abused its power, used radical equity arguments to tag Townstone as racist with zero evidence, and spent years persecuting and extorting them,' said Acting Director Russ Vought. Senior Advisor Dan Bishop added that the case represented 'a flagrant misuse of government resources to destroy a small business that did nothing wrong' and targeted the company 'for the crime of protected political speech.'
The agency's motion argues that Townstone was selected for enforcement not based on discriminatory conduct but solely on statistical disparities, despite the company having hired loan outreach officers for minority communities. A consumer testing survey commissioned by Townstone found that no Black respondents took offense to the company's radio content, with one calling the crime-related commentary 'reliable and helpful.'
The case highlights broader questions about fair lending enforcement and the use of statistical analysis to identify potential discrimination. The CFPB's willingness to vacate its own enforcement action signals a significant shift in the agency's approach to disparate impact theories and could influence how financial institutions approach compliance with fair lending laws going forward.