Townstone Financial Wins Against CFPB Overreach!
Townstone has won its defense against the CFPB's factually and legally baseless redlining lawsuit. The federal district court judge in the case has granted our legal team’s motion to dismiss. Our firm represented Townstone from the beginning of the investigation, and it has been a long, five-year road, but I am pleased that the court has finally put an end to the CFPB’s outrageous overreach in this case. I am also pleased that the court’s opinion can help rein in other CFPB and government overreach.
I will sum the decision up briefly here, and will follow up with a more detailed analysis soon. Our legal team's motion to dismiss was granted and CFPB's case was dismissed with prejudice. The judge agreed with our argument in the motion to dismiss that ECOA applies to “applicants,” and that under Chevron step one, that term is unambiguous and cannot be expanded by the CFPB to include “prospective applicants” in Regulation B’s prohibition against discouraging prospective applicants (which was the regulatory provision on which the CFPB based its claims against Townstone). The judge rejected the CFPB’s attempt to expand the boundaries of the statute under ECOA’s general rulemaking authority (which authorizes the CFPB to issue any rules that further the purpose and prevent evasion of the statute), and instead applied Chevron step one. The court concluded in its opinion “The anti-discouragement provision of Regulation B with respect to ‘prospective applicants’ does not survive Chevron step one, so the Court does not defer to the CFPB’s interpretation. Accordingly, the CFPB’s ECOA count is dismissed. The dismissal is with prejudice because any amendment would be futile.” The judge essentially rejected the CFPB’s argument that it can side-step Chevron and issue any rules that are reasonably related to the statutory purpose under its general rulemaking authority, which is important because other federal consumer finance statutes, such as TILA, have this same general rulemaking authority. This means that CFPB attempts to rely on similar authority to “push the envelope” in other cases and under other statutes, or similar efforts by other federal agencies, could be impacted by this ruling.
The judge did not have to reach an opinion on the First Amendment or Due Process claims in our motion to dismiss because of our win on the statutory authority grounds. But you can find my discussion of the case and those arguments in my past blog posts here, here and here.
Congratulations to Barry Sturner of Townstone Financial for sticking with the fight against government overreach, as well as to our legal team in the case, including the super talented lawyers at the Pacific Legal Foundation (Steve Simpson, Jessica Thompson, John Kerkhoff, and Oliver Dunford), Marx Sterbcow, and Sean Burke.
Please email me at rich@garrishorn.com if you would like to discuss or would like a copy of the opinion.
