As previously reported, in March 2025 the CFPB and Townstone Financial (Townstone) filed a joint motion with a U.S. District Court seeking to reverse the November 2024 consent order between the parties that resolved CFPB allegations of redlining on the part of Townstone in violation of the Equal Credit Opportunity Act (ECOA). The court recently denied that motion.
A central basis of the CFPB July 2020 redlining claim against Townstone, which was made during the first Trump Administration, was the Regulation B provision that provides “A creditor shall not make any oral or written statement, in advertising or otherwise, to applicants or prospective applicants that would discourage on a prohibited basis a reasonable person from making or pursuing an application.” The CFPB alleged that radio shows and podcasts hosted by Townstone included statements that would discourage African-American prospective applicants from applying for mortgage loans from Townstone.
Townstone filed a motion to dismiss the lawsuit in October 2020. A key argument made by Townstone was that while Regulation B refers to “prospective applicants,” the ECOA only refers to “applicants” and, therefore, a redlining claim cannot be brought under the ECOA because such a claim focuses on persons who are not yet applicants. The District Court agreed with Townstone in a February 2023 opinion and dismissed the lawsuit.
In April 2023 the CFPB appealed the decision to the U.S. Court of Appeals for the Seventh Circuit. In a July 2024 opinion that we criticized, the Seventh Circuit reversed the District Court’s ruling, finding that redlining claims may be brought under the ECOA because the statute prohibits the discouragement of prospective applicants for credit.
The parties then decided to settle. Pursuant to the settlement, Townstone is prohibited from taking any actions in connection with offering or providing mortgage loans that violate the ECOA and was required to pay a $105,000 penalty to the CFPB’s victims relief fund.
In a release announcing the filing to vacate the settlement, the CFPB stated that the bureau under former Director Rohit Chopra used a “redlining screen” based on an arbitrary number of mortgages. . “[The] CFPB [then] set out to destroy a small Midwest firm with about ten employees and a radio program called Townstone Financial,” the bureau said. “After a thorough review, the CFPB is seeking to make Townstone whole by returning the six-figure penalty they were forced to pay.”
Acting CFPB Director Russ Vought stated that “CFPB abused its power, used radical ‘equity’ arguments to tag Townstone as racist with zero evidence, and spent years persecuting and extorting them – all to further the goal of mandating DEI in lending via their regulation by enforcement tactics.”
CFPB Senior Advisor Dan Bishop added that “This was a flagrant misuse of government resources to destroy a small business that did nothing wrong.” He continued, “For the crime of protected political speech, this firm was targeted and harassed for years by this rogue agency. We are righting this wrong and protecting the First Amendment.” Neither the District Court nor the Court of Appeals addressed the First Amendment issues raised by Townstone, as both courts focused on whether the ECOA applies only to applicants, or to both applicants and prospective applicants.
Fourteen nonprofit organizations focused on fair housing and consumer protection filed an amicus brief with the District Court opposing the joint motion to reverse the settlement.
In its opinion denying the motion to reverse the settlement, the District Court noted that Federal Rule of Civil Procedure 60(b) allows a court to grant relief to a party from a final judgment or order for several listed reasons, and that Rule 60(b)(6) allows a court to grant relief for “any other reason that justifies relief.” Citing a Seventh Circuit decision, the District Court stated that “Rule 60(b)(6) is reserved for cases that present extraordinary circumstances,” and that a party “seeking relief under Rule 60(b)(6) must show extraordinary circumstances justifying the reopening of a final judgment.”
An initial issue addressed by the District Court was whether it should, following other court decisions, relax Rule 60(b)(6)’s requirement for vacating a final judgment or order because the motion to vacate is a joint motion. The District Court stated:
“Here, the Court must balance the parties’ desire to vacate the judgment with the public interest in the finality of judgments. What distinguishes this case from the cases cited by the [CFPB and Townstone], among other reasons, is the fact that [Townstone’s] alleged wrongdoing affected the public. This was not a private matter between private parties. CFPB’s complaint alleged that [Townstone] discouraged prospective African-American applicants in the Chicago metropolitan area from applying for mortgage loans. Indeed, the consent decree enjoined Townstone from engaging in the allegedly improper practices.
Under these circumstances, the Court finds that relaxing Rule 60(b)(6)’s requirement would be improper.”
The District Court then turned to the CFPB’s and Townstone’s substantive arguments for reversing the settlement. The Court stated as follows:
“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.
Notably, the Motion, as observed by Amici, is unprecedented. The Parties in this case—a government agency and private parties—voluntarily entered into a settlement and consent decree to resolve the dispute. As previously noted, the consent decree, among other things, enjoined Townstone from engaging in any acts that violate the ECOA in connection with offering or providing mortgage loans. The voluntary nature of the resolution of this case cannot be overemphasized. 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.”
In concluding its analysis, the District Court stated as follows:
“At bottom, to grant the Motion based on the arguments advanced by the Parties would be to undermine the finality of judgments. This, the Court declines to do. Indeed, the importance of preserving finality was illustrated by the Supreme Court just a few days ago, when it reaffirmed that it is “essential” to apply a strict standard to Rule 60(b) motions to preserve the finality of judgments.
Moreover, the Court agrees with Amici that granting the Motion would erode public confidence in the finality of judgments. 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.
All in all, balancing the benefits [of vacating the settlement] against the public interest in the finality of judgment, the Court finds that the latter outweighs the former.” (Citations omitted.)
In announcing the effort to reverse the settlement, Acting Director Vought hinted that the CFPB may take similar actions in the future. “The more we uncover at CFPB, the more we see how this agency was weaponized against targeted Americans,” he said. Potentially the District Court’s opinion may give pause to the CFPB in assessing whether to seek reversal in other matters.
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