» Judge Blocks CFPB’s Bid to Reverse Redlining Settlement with Townstone Financial

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Judge Blocks CFPB’s Bid to Reverse Redlining Settlement with Townstone Financial

June 15, 2025

The CFPB originally filed suit against Townstone Financial in July 2020, alleging the company violated the Equal Credit Opportunity Act (ECOA) by discouraging Black applicants through statements made on its radio shows and podcasts. The Bureau cited statistical disparities in applications from Black borrowers and claimed that Townstone’s advertising practices created a chilling effect for prospective applicants. Townstone responded that the ECOA only applies to actual applicants, not prospective ones, and won dismissal in district court. However, that decision was reversed by the Seventh Circuit in July 2024, leading to a negotiated consent order between the parties.

1.The Settlement and Attempted Reversal

In November 2024, Townstone agreed to a $105,000 penalty and a prohibition against ECOA violations going forward. But just a few months later, in March 2025, the CFPB—now under new leadership aligned with the second Trump administration—sought to vacate the settlement. The Bureau argued that the original case lacked legal and factual merit and was politically driven. The CFPB also stated it had used flawed, AI-powered review methods to analyze Townstone’s public statements. In what the judge described as a “legal hara-kiri,” the Bureau joined Townstone in requesting to unwind the very agreement it had previously negotiated.

2.The Court’s Decision

Judge Franklin Valderrama denied the joint motion, stating that granting such relief would set a dangerous precedent and erode public trust in the judicial process. He emphasized that Rule 60(b)(6)—which allows a final judgment to be set aside for extraordinary reasons—could not be relaxed simply because a government agency had changed its mind. The judge noted that the allegations involved harm to the public and that the original consent order had been voluntarily agreed upon by both sides. Allowing reversal under these circumstances, he said, would “open a Pandora’s box.”

3.Impact on CFPB and Broader Enforcement Trends

This case is part of a broader narrative surrounding the CFPB’s retreat from enforcement under current leadership. Just days before the ruling, the Bureau’s Acting Director of Enforcement, Cara Petersen, resigned, citing the administration’s unwillingness to pursue meaningful legal action. The Townstone case has drawn sharp criticism from both sides: civil rights groups opposed the reversal as harmful to fair lending enforcement, while CFPB leadership framed the original action as politically motivated overreach

4.What This Means Going Forward

The ruling serves as a strong signal to regulators and financial institutions that finalized consent orders are not easily undone. Even in cases where agency priorities shift, courts may be unwilling to unwind past settlements without compelling justification. While CFPB leaders have hinted at reviewing other past enforcement matters, this decision may slow or halt those plans. For lenders, this underscores the importance of viewing consent orders as binding and durable—regardless of political changes at the agency level.