The Consumer Financial Protection Board (CFPB), one of Barack Obama’s initiatives to “transform” America, was created in 2010. It was believed that because it was so set up, it would have a virtual veto over consumer credit.
Those fears were valid until Congress made several adjustments during Trump’s administration. A critical Supreme Court case weakened the power of CFPB, which can micro-manage stock trades and loan approvals.
However, the CFPB didn’t stop them from interfering with loan applications. One example of this was a Chicago radio talk show about real estate. Forbes described it as a “freewheeling” discussion about the loan business and any other topics that the panel members wanted to discuss.
Some people also raised concerns about the character of particular neighborhoods. Some areas were more dangerous than others, which is to say that they had higher crime rates. One host mentioned that the South Side of Chicago is a majority African-American neighborhood and is open for “hoodlum weekends” on Friday through Monday.
The CFPB ruled that Townstone mortgage, the sponsor of the radio station, and Townstone mortgage were in violation of CFPB rules against discrimination.
Townstone was prohibited by the CFPB from making any oral or written statements to prospective applicants in advertising or other ways that would discourage them. The CFPB also issued a regulation prohibiting Townstone from using radio talk to encourage discouragement.
Townstone defended the CFPB. Townstone defended against the CFPB. Townstone won based on careful analysis of the federal statute which prohibited creditors from discriminating.
According to the Equal Credit Opportunity Act, it is illegal for any creditor or lender to discriminate against applicants with respect to any aspect of credit transactions on the basis of their race. It defines an “applicant” as “anyone who applies to a creditor to extend, renew, or continue credit.”
Townstone is not included in the definition of “applicant”.
Townstone argued, and the court agreed, that nothing Townstone did involve anyone who had applied for credit. Whether obnoxious or not, and whether true or not, the conversations on Townstone’s radio show did not affect any applicants for credit. No one was being discriminated against as an applicant for credit because no one had applied for credit.
The most chilling thing is the fact that the agency believed it was competent to sanction Townstone.
The CFPB argued that it was able to exercise broad administrative authority beyond what is required by the federal equal credit opportunities law. The court ruled no. The court stated that Congress could have authorized the CFPB to prevent “discouragement” of credit applications if it had intended. It didn’t. It only prohibited discrimination against “applicants.”
“Beyond what the law says” They were struck down by the court, which concluded that the regulation exceeded CFPB’s authority. CFPB could not rely on this.
Despite some reductions in its power, the CFPB remains a nightmare.