Equal Credit Opportunity Act
CFPB v. Townstone Financial Inc.
Date: June 12, 2025
Issue: The Northern District of Illinois denied the request by the CFPB and Townstone Financial to vacate their settlement in the Consumer Financial Protection Bureau’s (CFPB) redlining lawsuit against the company.
Case Summary: An Illinois federal court denied the joint motion by the CFPB and Townstone to vacate the settlement in the bureau’s redlining lawsuit against the company.
In July 2020, the CFPB filed its first redlining lawsuit against a nonbank mortgage company, alleging Townstone violated the Equal Credit Opportunity Act (ECOA) and the Consumer Financial Protection Act by not lending in Chicago’s majority-Black areas and making comments that could have discouraged prospective Black customers from applying. CFPB argued courts should defer to its interpretation of ECOA under Regulation B, which it claimed applied to prospective applicants. Townstone countered that Regulation B did not cover prospective applicants and that the bureau’s interpretation violated the First Amendment.
In 2023, the Northern District of Illinois dismissed the case. Applying Chevron deference, the court ruled ECOA protects only actual applicants, not prospective ones. After the Supreme Court later overruled Chevron, the Seventh Circuit reversed the dismissal and held that ECOA does extend to discouraging prospective applicants.
In 2024, CFPB and Townstone reached a settlement, in which Townstone agreed to avoid ECOA violations in mortgage lending and pay a $105,000 civil penalty to the CFPB’s victims relief fund. In March 2025, CFPB and Townstone filed a joint motion to reverse the settlement. The parties argued that the case suffered from deficiencies on the merits and Townstone was targeted because of its protected speech.
The court denied the joint motion to vacate the settlement, emphasizing the need to weigh the parties’ request against the public’s interest in the finality of judgments. The parties filed the motion under Federal Rule of Civil Procedure 60(b)(6), not to facilitate a settlement, but to undo it. The court highlighted this case involved public harm, not just a dispute between private parties. Given the public implications, the court ruled that loosening the strict standards of Rule 60(b)(6) would be inappropriate.
Next, the court ruled the parties failed to meet the burden of showing extraordinary circumstances under Rule 60(b)(6). It emphasized that Townstone and the CFPB voluntarily entered into a settlement and consent decree to resolve the dispute. The decree barred Townstone from violating the ECOA when offering or providing mortgage loans. The court stressed the importance of this voluntary agreement and noted the CFPB only sought to undo it after a change in leadership. Granting the motion, the court explained, would undermine the finality of judgments, and weaken public confidence in the judicial system — something it was unwilling to do.
Bottom Line: The court warned that vacating the settlement would set a precedent allowing new administrations to undo voluntary case resolutions reached by their predecessors.
Documents: Order
