U.S. District Judge in Chicago rules against CFPB’s effort to withdraw a redlining settlement
Decision thwarts a joint CFPB-Townstone bid, amid claims of political overreach
Judge warns against undermining judicial finality: “a Pandora’s box the court refuses to open”
In a sharply worded decision last week, a federal judge in Chicago denied a highly unusual motion by the U.S. Consumer Financial Protection Bureau (CFPB) and mortgage lender Townstone Financial to vacate a 2023 settlement over alleged racial discrimination in mortgage lending.
The ruling deals a blow to efforts by Trump-era officials to seek vindication for Townstone and to return the six-figure penalty it paid to settle the case.
Background: CFPB’s Redlining Case
The CFPB originally sued Townstone in 2020 during Donald Trump’s first presidency, accusing the lender of “redlining” — a discriminatory practice in which services are denied or withheld from potential customers in predominantly Black neighborhoods. According to the agency, Townstone had published promotional material containing “derogatory and disparaging” remarks that discouraged African American homebuyers from applying for loans.
Despite the lawsuit being brought under Trump-appointed CFPB leadership, some senior officials from that administration have since argued the case was baseless and politically motivated. They claimed that, under former director Rohit Chopra, the bureau "set out to destroy a small Midwest firm with about ten employees."
In March, the CFPB joined Townstone in seeking to reopen the case and nullify the settlement, citing a supposed lack of evidence. 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.
Judge Slams ‘Legal Hara-Kiri’
U.S. District Judge Franklin Valderrama found no justification for such a reversal. In his decision, he emphasized that the courts had never formally assessed the strength of the CFPB’s evidence prior to the settlement — and that re-litigating the matter now would dangerously erode the rule of law.
"At bottom, to grant the motion based on the arguments advanced by the parties would be to undermine the finality of judgments," Valderrama wrote. "That is a Pandora’s box the court refuses to open.” He likened the agency’s request to “an act of legal hara-kiri that would make a samurai blush,” signaling his disapproval of the about-face by both the regulator and the regulated party.
Calling the CFPB's attempt to undo the settlement "unprecedented," the judge said "the parties in this case — a government agency and private parties — voluntarily entered into a settlement and consent decree to resolve the dispute. ... 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,” he said.
The CFPB did not publicly comment, but Steve Simpson, an attorney representing Townstone, maintained that the court had failed to acknowledge the “utter lack of evidence” supporting the CFPB’s original case. He suggested that Townstone may now push for congressional scrutiny of the matter.
The decision underscores the judiciary’s reluctance to grant retroactive leniency in the absence of compelling legal grounds — even in cases where both sides agree.
Radio show complicated the case
It's rare for a radio program to be involved in a redlining dispute but the Townstone firm hosted a local radio show in the Chicago area that the CFPB alleged "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, saying that federal regulations referred to "applicants," not "prospective applicants." The district court agreed with Townstone in a February 2023 opinion and dismissed the lawsuit.
Next, in April 2023 the CFPB appealed the decision to the U.S. Court of Appeals for the Seventh Circuit. In a July 2024 opinion, the Seventh Circuit reversed the lower court's ruling, finding that under the statute, prospective applicants for credit were covered. It was after the ruling that the parties agreed to settle.