When the Consumer Financial Protection Board (CFPB) was formed in 2010 — one of Barack Obama’s efforts to “transform” America — it was thought that the way it was set up, it would have virtual veto power over consumer credit.
Those fears were justified until several tweaks by Congress during the Trump administration, and a critical Supreme Court case diluted the power of CFPB to micro-manage loan approvals and stock trades.
But that didn’t stop the CFPB from trying to meddle in loan applications. One such case involved a radio talk show in Chicago about real estate. It was, as Forbes describes it, a “free-wheeling” discussion of the loan business and whatever else the panel participants wanted to talk about.
There was also some talk about the character of certain neighborhoods. That is to say, some areas had higher crime rates than other neighborhoods. One host mentioned the South Side of Chicago, which is majority African-American, is “hoodlum weekend” from Friday to Monday.
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The CFPB decided that the radio station and the show’s sponsor, Townstone mortgage, violated CFPB rules against “discrimination.”
The CFPB had issued a regulation that prohibited companies like Townstone from making “any oral or written statement, in advertising or otherwise, to prospective applicants that would discourage an application.” The CFPB took action against Townstone, saying the conversations on the radio show amounted to prohibited speech under CFPB’s regulation against “discouragement.”
Townstone defended against the CFPB. If Townstone asserted any First Amendment “free speech” rights against CFPB, those arguments didn’t make it into the final reported decision. Instead, Townstone prevailed based on a careful reading of the federal statute that banned creditors from discriminating.
The Equal Credit Opportunity Act states that it’s “unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction on the basis of race.” And it defines “applicant” to mean “any person who applies to a creditor for an extension, renewal, or continuation of credit.”
You’d be right if you guessed that the “applicant” definition doesn’t apply to Townstone.
Townstone argued, and the court agreed, that nothing Townstone did involved 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.
What’s truly chilling is why the agency thought it had the authority to try to punish Townstone.
The CFPB argued it had broad administrative authority going beyond the words of the federal equal credit opportunity law. The court said no. The court said that if Congress had intended to empower the CFPB to guard against “discouragement” of credit applications, Congress would have said that. And it didn’t. It just prohibited discrimination against “applicants.”
“Beyond the words” of the law? The court slapped them down, concluding that the regulation itself exceeded CFPB’s authority. Thus CFPB couldn’t rely on it.
The CFPB is still a nightmare, even if some of its power has been stripped.
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