In a significant development, the Consumer Financial Protection Bureau (CFPB or Bureau) has finally reached a settlement with Townstone Financial, Inc. (Townstone) in the first redlining case brought against a nonbank mortgage lender and broker. This settlement follows the Seventh Circuit Court of Appeals’ pivotal decision in favor of the CFPB that expanded the Equal Credit Opportunity Act (ECOA) to include protections for prospective applicants who may be discouraged from applying for credit. The settlement marks a resolution of protracted litigation that began in 2020 when the CFPB sued Townstone by accusing the company of redlining practices.
Lori Sommerfield
With over two decades of consumer financial services experience in federal government, in-house, and private practice settings, and a specialty in fair lending regulatory compliance, Lori counsels clients in supervisory issues, examinations, investigations, and enforcement actions.
Fifth Circuit Grants Expedited Appeal in Challenge to CFPB’s Section 1071 Final Rule; Denies Temporary Administrative Stay
On October 31, the U.S. Court of Appeals for the Fifth Circuit Court of Appeals granted the appellants’ motion to expedite the appeal in Texas Bankers Association v. Consumer Financial Protection Bureau (CFPB). The suit brought by several trade associations challenges the CFPB’s Final Rule under § 1071 of the Dodd-Frank Act, the “Small Business Lending Data Collection Rule” (Final Rule). The court scheduled oral argument for February 3, 2025. However, in that same order, the court denied appellants’ motion for a temporary stay of the Final Rule’s compliance dates, stating that the motion for a stay pending appeal “remained pending.” This means that the compliance dates set forth in the CFPB’s Interim Final Rule remain for now, with the earliest date for the largest lenders being July 18, 2025.
New Jersey Attorney General Releases Report on Republic First Bank’s Unlawful Redlining Practices
On October 29, New Jersey Attorney General Matthew Platkin and the state’s Division on Civil Rights (DCR) released a report detailing the findings of a multi-year investigation into Republic First Bank (Republic) and its alleged mortgage redlining practices. According to the report, the investigation revealed that Republic engaged in a pattern or practice of redlining against Black, Hispanic, and Asian communities in New Jersey, in violation of the New Jersey Law Against Discrimination.
DOJ and CFPB Announce Landmark Redlining Settlement With Fairway Independent Mortgage Corporation
On October 15, the Consumer Financial Protection Bureau (CFPB or Bureau) and the Department of Justice (DOJ) announced that they reached a settlement with Fairway Independent Mortgage Corporation (Fairway). This settlement addresses allegations of redlining in majority-Black neighborhoods in Birmingham, Alabama. Fairway is headquartered in Madison, WI, but operates under the trade name MortgageBanc in the Birmingham area. Fairway, the third-largest mortgage lender in the United States, is now the second non-bank mortgage company to enter into a redlining settlement.
DOJ Reaches Historic Multi-Million Dollar Redlining Settlement With Citadel Federal Credit Union
On October 10, the U.S. Department of Justice (DOJ) announced a landmark redlining settlement with Citadel Federal Credit Union (Citadel), marking the first such agreement with a credit union in the DOJ’s history. This settlement, the 14th in DOJ’s Combatting Redlining Initiative since 2021, addresses allegations that Citadel engaged in discriminatory lending practices by redlining predominantly Black and Hispanic neighborhoods in and around Philadelphia. Under the terms of the proposed consent order, Citadel will pay over $6.5 million to resolve these allegations.
CFPB Releases New Circular on Opt-In Requirements for Overdraft Services
On September 17, the Consumer Financial Protection Bureau (CFPB or Bureau) published Circular 2024-05 (Circular) addressing whether a financial institution violates the Electronic Fund Transfer Act (EFTA) and Regulation E by charging overdraft fees for ATM and one-time debit card transactions without proof of the consumer’s affirmative consent to enrollment in covered overdraft services. (According to the CFPB’s press release, the Bureau considers this to be a “phantom opt-in.”) The Bureau’s response is clear: Yes, charging fees in these circumstances can indeed constitute a violation of EFTA and Regulation E.
U.S. Senator Rounds Introduces Legislation Aimed at Fostering AI Innovation in the Financial Services Industry
On August 27, U.S. Senator Mike Rounds (R-SD) introduced the “Unleashing AI Innovation in Financial Services Act” (S. 4951), a bill aimed at fostering artificial intelligence (AI) innovation within the financial services industry. According to his press release, this legislation is part of a broader set of five bipartisan AI bills that Senator Rounds has released for consideration by Congress this fall.
League of Southeastern Credit Unions and Virginia Credit Union League Announce Merger Plans
Yesterday, the League of Southeastern Credit Unions (LSCU) and the Virginia Credit Union League (VCUL) announced plans to merge, marking the first state league consolidation since 2022. According to the leagues’ combined website, this strategic partnership will provide a larger, more diverse membership base and will have a stronger voice in industry discussions and advocacy efforts. Additionally, by implementing a modernized dues formula, the leagues’ members will benefit from increased efficiencies and cost savings.
CFPB Orders Mortgage Lender to Pay $2.25 Million for Allegedly Deceiving Servicemembers and Veterans
Yesterday, the Consumer Financial Protection Bureau (CFPB or Bureau) announced it had entered into a consent order with NewDay USA, a Florida-based non-bank direct mortgage lender, over allegations that the lender misled veterans and military families about the costs associated with cash-out refinance loans. According to the Bureau, NewDay USA gave misleading and incomplete cost comparisons to borrowers refinancing in North Carolina, Maine, and Minnesota, which made the company’s loans appear less expensive relative to the borrowers’ existing mortgages.
Texas Federal District Court Rejects All Administrative Procedure Act Challenges to CFPB’s Section 1071 Final Rule
Yesterday, the U.S. District Court for the Southern District of Texas granted the Consumer Financial Protection Bureau’s (CFPB or Bureau) motion for summary judgment on all Administrative Procedure Act (APA) challenges brought by several trade associations to the CFPB’s Final Rule under § 1071 of the Dodd-Frank Act, the “Small Business Lending Data Collection Rule” (Final Rule).