CFPB vacates Townstone settlement, citing bureau misconduct

In an unexpected move, the Consumer Financial Protection Bureau has asked a federal judge to vacate and set aside a $105,000 judgment against Townstone Financial, a Chicago mortgage broker accused of redlining. 

Officials with the Trump administration claim the CFPB engaged in misconduct and should never have brought the case, which was filed in 2020 by former CFPB Director Kathy Kraninger, a Trump appointee.

On Tuesday, the CFPB’s Chief Legal Officer Mark Paoletta and attorneys for Townstone filed a joint motion for relief with the U.S. District Court for the Northern District of Illinois. The parties requested that the court set aside the CFPB’s judgment and dismiss the case with prejudice. 

Trump administration officials with the Office of Management and Budget said they have been digging through CFPB cases and found that “internal case files” show that the bureau investigated Townstone and the company’s president and CEO Barry Sturner “without a substantial predicate of actionable facts.” 

Dan Bishop, a senior advisor at the Office of Management and Budget, said in a declaration filed with the court late Wednesday, that the CFPB targeted Sturner “based on constitutionally protected speech.”

“This action should not have been filed,” Bishop wrote in the declaration. “Once new CFPB leadership undertook the review of the history of this case, it became clear from the totality of internal evidence that this case has suffered from deficiencies on the merits and Townstone was targeted because of its protected speech.”

Bishop reports to acting CFPB Director and Office of Management and Budget Director Russell Vought — a leading author of the Heritage Foundation’s Project 2025 blueprint for the Trump administration.

Under Kraninger’s watch, the CFPB alleged that Townstone engaged in illegal redlining and that Sturner’s comments on a radio show infomercial discouraged prospective Black applicants from applying for home loans. Sturner marketed the mortgage broker’s services through an AM radio show called “The Townstone Financial Show.”

The CFPB’s 19-page lawsuit from 2020 cited an episode of the radio show from 2017 in which the Sturner described a Jewel-Osco grocery store in downtown Chicago as “Jungle Jewel” that was frequented by “people from all over the world” and “a scary place.” In a 2016 episode of the radio show, the CEO said that the South Side of Chicago between Friday and Monday is “hoodlum weekend” and that the police are “the only ones between that turning into a real war zone and keeping it where it’s kind of at.”

The CFPB issued its first press release since the Trump administration named Treasury Secretary Scott Bessent to be the bureau’s acting director in February, though he held the job for just five days. In the release, Vought referred to the case against Townstone as “a seven-year harassment saga.” Kraninger was not mentioned in the legal filings, which lambasted the CFPB for its focus on diversity, equity and inclusion, known as DEI.

Vought said in the press release that the CFPB “set out to destroy a small Midwest firm with about ten employees and a radio program called Townstone Financial. After a thorough review, the CFPB is seeking to make Townstone whole by returning the six-figure penalty they were forced to pay.”

The 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,” Vought said in the press release. “The more we uncover at CFPB, the more we see how this agency was weaponized against targeted Americans.”

Bishop said in the release that the case “was a flagrant misuse of government resources to destroy a small business that did nothing wrong. 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.” 

The CFPB also said that the investigation of Townstone was not prompted by “any actual or perceived harm, but by pure quota-style statistics.” It described a screening for redlining that initially identified 22,000 companies, which the bureau winnowed down to a handful of firms.

The officials also claimed that the CFPB under Kraninger targeted Townstone “not based on any act of discriminatory conduct, but solely on perceived racial disparities in mortgage application and origination statistics.”

Townstone received 876 mortgage applications over a three-year period of which 31 came from “majority-minority” areas.

“CFPB wanted a de-facto mortgage quota, a policy aligned with the views of radical DEI proponents like Robin DiAngelo and Ibram X. Kendi,” the press release stated, respectively, to the authors of “White Fragility: Why It’s So Hard for White People to Talk About Racism,” and “How to be an Antiracist.” 

The officials also said that in its investigation, the CFPB used an audio mining software to search Townstone’s radio show and podcasts. The agency identified 16 minutes out of nearly 79 hours of radio content that investigators deemed “disconcerting” and that “could be interpreted as inappropriate, incorrect, or insensitive.” 

The press release stated: “What was so disconcerting? Talking about local crime, political issues around freedom of speech, supporting local law enforcement, and telling people to check out a neighborhood before buying a home.”

Townstone had agreed to settle the case in November for $105,000. The CFPB is asking the court to refund the penalty and dismiss the case with prejudice.