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As discussed here, on February 3, 2023, an Illinois federal court dismissed a case brought by the Consumer Financial Protection Bureau (CFPB or Bureau) in 2020 against Townstone Financial, Inc., a Chicago mortgage lender, for alleged violations of the Equal Credit Opportunity Act (ECOA). The CFPB had accused Townstone of discouraging prospective African American applicants in the Chicago metropolitan area from applying for mortgages.

Continue Reading Seventh Circuit Reverses District Court Decision, Expands ECOA to Include Prospective Applicants

On April 14, the Consumer Financial Protection Bureau (CFPB) submitted a statement of interest to the U.S. District Court for the Southern District of Florida arguing that the Equal Credit Opportunity Act’s (ECOA) prohibition on discrimination covers every aspect of an applicant’s dealings with a creditor, not just the specific terms of a loan (like the interest rate or fees). This statement shows that the CFPB is continuing to press its position for a broad view of the scope of ECOA, notwithstanding that another federal district court recently rebuffed the CFPB’s position.

The new CFPB effort comes in Roberson v. Health Career Institute, LLC, et al., where a putative class of Black students enrolled at Health Career Institute (HCI), a for-profit nursing school, alleged that after HCI arranged for students to take out federal and private student loans to pay for the program, HCI adopted new policies that increased the amount of time and money it would take students to complete the program. The plaintiffs further alleged that HCI intentionally targeted its program to individuals on the basis of race, with the understanding that they were more likely to require an extension of credit to pay for the program, thereby engaging in “reverse redlining” or “discriminatory targeting” in violation of ECOA.

HCI moved to dismiss the plaintiffs’ complaint arguing that the plaintiffs failed to specify any aspect of any credit transaction that was discriminatory based on race and failed to identify any specific loan term that was unfair or predatory based on race. The CFPB submitted a statement of interest to “assist the Court in its evaluation of Plaintiffs’ claim under the [ECOA].”

To state an ECOA claim, a plaintiff must allege that a defendant engaged in discrimination “with respect to any aspect of a credit transaction.” In its statement of interest, the CFPB argues the court should take an expansive view of credit transaction. “Courts have found, for example, that aspects of credit transactions include not just the credit terms in the four corners of the contract — such as interest rates or repayment terms — but also sale prices or down payments; determinations of borrowers’ ability to repay; rates of default, repossession, or foreclosure; and the delivery of services in connection with offering credit.”

In Roberson, the plaintiffs alleged that HCI steered its students into retail installment contracts, even when other, more favorable financing options existed. The plaintiffs also alleged that HCI represented to students that its program would last five semesters and cost $10,000 per semester, but while students were enrolled HCI imposed new grading policies and graduation requirements, which coerced students into repeating semesters they had already taken, which in turn increased the amount of time and money it took for them to complete their program. According to the CFPB, the plaintiffs “allege discrimination with respect to multiple aspects of a credit transaction — including the contract terms (such as repayment terms), the cost of the product and the amount of credit needed to pay for it, the likely ability of students to repay the credit, the consequences of nonpayment, and the performance of goods and services obtained with credit — any one of which is a sufficient ‘aspect of a credit transaction’ under ECOA.”

In conclusion, the CFPB urged the court to find ECOA’s prohibition on discrimination “with respect to any aspect of a credit transaction” extends to discrimination beyond the four corners of the loan contract.

Our Take:

The CFPB recently lost an effort to expand the scope of ECOA to include prospective applicants. In CFPB v. Townstone Financial, Inc., discussed here and here, the CFPB brought a case against the Chicago mortgage lender for purportedly discouraging prospective Black applicants in the Chicago metropolitan area from applying for mortgages. The Illinois federal court dismissed the case, finding that ECOA used the word “applicant” 26 times whereas the statute did not prohibit or discuss conduct prior to the filing of an application. The court found that because the text of the ECOA is unambiguous, it held, “[t]he CFPB cannot regulate outside the bounds of the ECOA, and the ECOA clearly marks its boundary with the term ‘applicant.'”

Roberson appears to us to be another aggressive attempt by the CFPB to expand the scope of ECOA outside of its statutory limits. We also note that while Regulation B protects “prospective” applicants against discouragement based on race, the Roberson case appears to be a case of encouragement based on race.

Please join Troutman Pepper Partner Chris Willis and his colleague Consumer Financial Services Partner Lori Sommerfield as they discuss the implications of the recent Illinois federal court decision, dismissing the CFPB’s first-ever redlining case against Townstone Financial, Inc., which alleged that Townstone engaged in redlining practices by discouraging applications under the Equal Credit Opportunity Act (ECOA) through its marketing approach. The court found that ECOA does not extend to prospective applicants.

Continue Reading Illinois Federal Court Dismisses CFPB’s First Redlining Case, Holding ECOA Doesn’t Extend to Prospective Applicants

On February 9, the Federal Trade Commission (FTC) submitted its annual letter to the Consumer Financial Protection Bureau (CFPB) summarizing its activities enforcing the Equal Credit Opportunity Act (ECOA) and its implementing regulation, Regulation B. This letter is included in the CFPB’s annual report to Congress on the ECOA. A copy of the summary was also provided to the Federal Reserve Board.

The FTC is responsible for ECOA and Regulation B enforcement for financial service providers that are not banks, thrifts, or federal credit unions. In its summary, the FTC described its work on ECOA-related issues, including enforcement actions, research, and policy development such as:

  • Initiating two cases against auto dealership groups alleging the dealerships violated ECOA by discriminating against Black (and in one case Latino) consumers by charging higher interest rates and illegal “junk fees.”
    • See prior discussion of one of those cases here.
  • Issuing a report to Congress titled “Combatting Online Harms Through Innovation,” warning about using artificial intelligence to combat online problems, noting concerns that these tools can have inherent potential for inaccuracy, bias, and discrimination, and can harm marginalized communities.
  • Co-Hosting the Fifteenth Annual FTC Microeconomics Conference, which included a discussion on designing dealer compensation in the auto loan market. The segment addressed, among other things, how the discretionary mark-up of interest rates can vary systematically by protected characteristics such as gender and race, and it also referenced the ECOA protections.
  • Working as a liaison to the American Bar Association’s Standing Committee on Legal Assistance for Military Personnel (ABA LAMP). During ABA LAMP trainings and meetings, the FTC addressed issues related to military consumers’ rights pertaining to the anti-discrimination provisions in the ECOA and Regulation B.
  • Participating as a member of the Interagency Task Force on Fair Lending, a joint undertaking with the CFPB, the U.S. Department of Justice (DOJ), the U.S. Department of Housing and Urban Development (HUD), and the federal banking agencies, which shares information and discusses policy issues.
  • Participating as a member of the Interagency Fair Lending Methodologies Working Group, with the CFPB, the Federal Housing Finance Agency, DOJ, HUD, and the federal banking agencies, to coordinate and share information on analytical methodologies used in the enforcement and supervision of compliance with fair lending laws, including ECOA.
  • Providing guidance for consumers emphasizing that creditors may not consider during the application process or when making a credit decision, things such as a consumers’ race or sex, including sexual orientation and gender identity.

On February 3, an Illinois federal court dismissed a case brought by the Consumer Financial Protection Bureau (CFPB) against Townstone Financial, Inc., a Chicago mortgage lender, for alleged violations of the Equal Credit Opportunity Act (ECOA) for purportedly discouraging prospective African American applicants in the Chicago metropolitan area from applying for mortgages. Townstone moved to dismiss, arguing the suit was an attempt by the CFPB to expand the reach of the ECOA to “prospective applicants,” when the statute itself only prohibits discrimination against “applicants.”

In the complaint, which asserts redlining and discouragement claims under the ECOA, the CFPB alleged that from 2014 through 2017, Townstone drew around 2,700 applicants, only 37 (1.4%) of which came from African Americans in the Chicago metropolitan area. During that same period, it drew only five or six applications (0.8%) each year from high-African American neighborhoods even though such neighborhoods make up 13.8% of the census tracts. While Townstone allegedly drew between 1.3% and 2.3% of its applications for properties in majority-African American neighborhoods, from 2014 through 2017, its peers drew many times more (between 7.6% and 8.2%). The CFPB alleged that Townstone’s acts, including comments made on its podcast, discouraged prospective African American applicants, and that the ECOA’s implementing regulation, Regulation B, extends the ECOA’s prohibition to discouraging “potential applicants.” Townstone argued that the CFPB was attempting to expand the reach of the ECOA, which regulates the company’s behavior towards applicants for credit, but does not regulate behavior towards prospective applicants who have not yet applied for credit. The district court agreed with Townstone, specifically finding “[t]he CFPB’s authority to enact regulations is not limitless.”

When performing its Chevron analysis of the ECOA, the court found “the word ‘applicant’ is used twenty-six times in the statute, and the statute does not prohibit or discuss conduct prior to the filing of an application.” The court found that because the text of the ECOA is unambiguous, it owed no deference to the definition of “applicant” under Regulation B. It therefore held, “[t]he CFPB cannot regulate outside the bounds of the ECOA, and the ECOA clearly marks its boundary with the term ‘applicant.'” The court further dismissed the CFPB’s ECOA count with prejudice because “any amendment would be futile.”

Our take: The scope of the ECOA has been attacked from both directions in recent litigation. Some courts have held that a person who has already received credit is not an “applicant,” and therefore is not covered by the ECOA; the CFPB and Federal Trade Commission filed amicus briefs in some of those cases asserting the opposite view. Now, the Townstone court has limited the definition of “applicant” to exclude persons who have not yet applied for credit, and a plain-language reading of the statute supports this conclusion. This latter holding has very significant implications for ECOA claims based on advertising (including based on online targeted advertising), which would be barred under the reasoning of the Townstone decision. Notably, however, it would not impact mortgage redlining cases brought by the U.S. Department of Justice (DOJ), because the DOJ can also rely on the Fair Housing Act, which is not limited to “applicants.” The CFPB has no authority to bring claims under the Fair Housing Act, and so if this holding is more widely adopted among federal courts, it may force the CFPB to refer all redlining cases to the DOJ in the future.

It is likely that the CFPB will seek to appeal this decision. We will, of course, monitor this issue and continue to post updates here.

In Fillinger v. Third Fed. Sav. & Loan Ass’n, No. 21-3088 (6th Cir. 2021), the Sixth Circuit held that an alleged denial of a loan is a sufficient injury to confer standing under Article III of the Constitution.

The plaintiff, Judy Fillinger, applied for a loan with Third Federal Savings and Loan Association (Third Federal) in August 2020. Fillinger’s application disclosed that Third Federal had foreclosed on a previous loan, causing the lender to request further information. Fillinger provided documentation of a bankruptcy case that discharged her debt in 2009, along with three foreclosure cases in 2010, 2012, and 2014. The 2010 case was dismissed for failure to prosecute, and the latter two cases ended with a ruling that Third Federal was not a party, and therefore, had no obligation on the debt. After this disclosure, however, Third Federal denied Fillinger’s application on the grounds that “a previous real estate debt was settled for less than the full balance.”

In response to Third Federal’s decision, Fillinger filed suit alleging violation of the Fair Credit Reporting Act (FCRA) and the Equal Credit Opportunity Act (ECOA). Third Federal moved to dismiss the claims for lack of standing, asserting that Fillinger could not establish that she had suffered an injury based on the denial of her application. The U.S. District Court for the Northern District of Ohio agreed and dismissed Fillinger’s claims.

On appeal, the Sixth Circuit noted that, to satisfy the requirements for Article III standing, a plaintiff must demonstrate that (1) she suffered an injury that, in fact (2) was caused by the defendant, and which (3) can be redressed through a favorable judicial decision. Based on this standard, the court found that Fillinger’s complaint alleged a concrete injury — the denial of her loan application. Further, the court found that Fillinger alleged that the injury: (a) was caused by Third Federal when it committed the alleged FCRA and ECOA violations; and (b) could be redressed through a favorable judicial decision based on the remedies requested in the complaint. It therefore vacated the court’s decision and remanded the case for further proceedings.

Three industry organizations filed suit against the Nevada Attorney General and the Commissioner of the Nevada Financial Institutions Division, claiming that a newly enacted Nevada law conflicts with and is preempted by federal law, including the Fair Credit Reporting Act (FCRA) and the Equal Credit Opportunity Act (ECOA).  They are seeking an injunction preventing Nevada officials from enforcing the law.

The bill in question, SB 311, would allow, under certain circumstances, for an applicant who has no credit history to request that the creditor deem the credit history of the applicant to be identical to the applicant’s spouse (or former spouse). According to the bill’s sponsor, the bill was meant to assist a person who “may not be able to obtain credit, even though the person contributed to the development of the couple’s credit history, because the credit history is entirely in the spouse’s name.” If a creditor violates the new law, the violation would be deemed discrimination based on marital status. The bill was enacted earlier this year and was set to take effect on October 1, 2019, the day this lawsuit was filed.

The plaintiffs – the American Financial Services Association, the Nevada Credit Union League, and the Nevada Bankers’ Association – are industry associations whose members include financial institutions and furnishers of credit reporting information. They argue that SB 311 would force creditors to violate the FCRA by requiring them to access and use the non-applicant spouse’s consumer report without a permissible purpose. They also contend that ECOA generally prohibits creditors from requesting information concerning the spouse of an applicant. In contrast, SB 311 would require creditors to obtain information about a spouse or ex-spouse.

The industry organizations also assert the Nevada bill violates longstanding privacy and data security rules by requiring creditors to access credit information and disclose it to an applicant without the knowledge of the consumer (the spouse or ex-spouse). Finally, they claim the law is “hopelessly unworkable” from a practical standpoint as creditors have no way of obtaining a credit report associated with a particular period in time, such as during a marriage, so the credit report they would be required to obtain would not necessarily be an accurate reflection of an ex-spouse’s credit contributions.

This action is similar to recent litigation in Maine where the Consumer Data Industry Association is seeking for the court to declare that two newly enacted state statutes are preempted by the FCRA, which our blog covered here. The two cases taken together show the tension between attempts by states to protect consumers and the financial services industry’s need for uniform applicability in a complex area of law.

The Eastern District of Wisconsin issued a ruling dismissing an Equal Credit Opportunity Act case that asserted a novel claim regarding discrimination by a lender in requiring that the applicant remove disputes from his credit score before reviewing his application for a home equity loan. In Kolodzinski v. Pentagon Federal Credit Union, the Court granted PenFed’s motion to dismiss with prejudice, holding that the plaintiff consumer had not exercised any right under the Consumer Credit Protection Act, Title 15, Chapter 41 of the U.S. Code.

Plaintiff John Kolodzinski applied for a home equity loan with PenFed.  PenFed suspended the application when Kolodzinski’s credit report revealed five disputes made on other accounts, informing him that it could not proceed unless the disputes were removed.  Once Kolodzinski removed the disputes, his credit score dropped below the minimum threshold, and as a result his application was denied.  He then filed suit for a violation of 15 U.S.C. § 1691(a)(3), which holds that it is unlawful for a creditor to discriminate against an applicant “because the applicant has in good faith exercised any right under [the Consumer Credit Protection Act].”  Kolodzinski contended that the Fair Credit Reporting Act and the Fair Debt Collection Practices Act (which are both a part of the Consumer Credit Protection Act) give him the right to dispute an account.  He contended that PenFed discriminated against him, in violation of ECOA, by requiring that he remove the disputes before proceeding with the application.

The Court found, however, that neither the FDCPA nor the FCRA confer on Kolodzinski a right to dispute debts; they simply ensure that any debts that he disputes are accurately reported.  Additionally, the Court found that his theory was inconsistent with the purpose of ECOA, and its implementing Regulation B.  Regulation B provides that “a creditor may restrict the types of credit history and credit references that it will consider, provided that the restrictions are applied to all credit applicants without regard to sex, marital status, or any other prohibited basis.”  12 C.F.R. § Pt. 1002, Supp. I, cmt. to Paragraph 6(b)(6).  PenFed elected to restrict the types of credit history it will consider to credit reports that are dispute free.  Kolodzinski did not allege that PenFed’s restriction was applied in a non-uniform way, and he therefore failed to establish that he was treated less favorably than any other applicant.

This case shows that the duties imposed on lenders by the FDCPA and the FCRA are not necessarily rights conferred on borrowers.  Andrew Buxbaum, Sarah Warren Smith, and Ethan Ostroff of Troutman Sanders represented PenFed before the Eastern District of Wisconsin.

On October 2, the Consumer Financial Protection Bureau (CFPB or Bureau) published a final rule in the Federal Register, officially extending compliance dates for its 2023 small business lending data collection and reporting rule under the Equal Credit Opportunity Act (ECOA) and Regulation B, which implements Section 1071 of the Dodd-Frank Act. The final rule replaces an interim rule released in June 2025 that pushed back compliance deadlines. This extension was issued by the CFPB in response to ongoing litigation by both industry and consumer advocacy groups, as well as court orders, to create a uniform timeline for financial institutions to comply with data collection and reporting requirements for women-owned, minority-owned, and small businesses.

Continue Reading CFPB Officially Extends Compliance Dates for Section 1071 Rule; New Rulemaking Expected Soon