The FTC has filed an amicus brief in support of the CFPB’s appeal to the U.S. Court of Appeals for the Seventh Circuit from the district court’s decision in the CFPB’s enforcement action against Townstone Mortgage (Townstone).  In the case, the district court ruled that a redlining claim may not be brought under the Equal Credit Opportunity Act (ECOA) because the statute only applies to applicants.

In its brief, the FTC makes the following principal arguments for why the district court’s decision should be reversed:

  • The ECOA’s stated purpose is “to require that financial institutions and other firms engaged in the extension of credit make that credit equally available to all credit-worthy customers without regard to [whether a customer is a member of a protected class.]”  The ECOA provides that the CFPB (previously the Federal Reserve Board) “shall prescribe regulations to carry out the purposes of [the ECOA].  These regulations may contain but are not limited to such classifications, differentiation, or other provision…as in the judgment of the Bureau are necessary or proper to effectuate the purposes of  [the ECOA], to prevent circumvention or evasion thereof, or to facilitate or substantiate compliance therewith.”  The prohibition of discouraging credit applications from protected classes is an obvious and essential method of preventing evasion of the ECOA. As such, the prohibition falls within the CFPB’s mandate to further the ECOA’s purpose and prevent its evasion. 
  • By amending the ECOA to require enforcement authorities to refer to the Attorney General cases where a creditor has engaged “in a pattern or practice of discouraging or denying applications in violation of [the ECOA],” Congress affirmed that discouragement violates the ECOA.  
  • The district court’s holding “would greenlight egregious forms of discrimination so long as they occurred ‘prior to the filing of an application.’”

In addition to the FTC, amicus briefs in support of the CFPB have been filed by a variety of consumer groups including the National Consumer Law Center, the National Fair Housing Alliance, and the American Civil Liberties Union.