As Trump Administration Moves To Void Settlement With Small Business, Documents Shed Light on Kafkaesque Nightmare to Which it Was Subjected

In November 2024, the Biden administration’s Consumer Financial Protection Bureau (CFPB) fined Townstone Financial, a small mortgage company in Chicago, Ill., $105,000 for statements the company’s owner had made about crime in the city. The police "are the only ones between that [area] turning into a real war zone and keeping it kind of where it’s at," Barry Sturner said in 2016.

Now, the Trump administration is pressing a court for the green light to give the money back.

On Wednesday the CFPB asked the U.S District Court for the Northern District of Illinois to void the settlement agreement the Biden administration reached with Townstone, a move that would allow the bureau to return the money the company forked over to the government as part of the agreement. It is a belated mea culpa from an agency that nearly bankrupted a small business over political speech and comes after President Donald Trump signed an executive order instructing agency heads to "correct past misconduct … related to censorship."

Former Rep. Dan Bishop (R., N.C.), the deputy director at the Office of Management and Budget (OMB) who has been detailed to the CFPB, cited that order as the impetus for Wednesday's motion, which argues that Townstone was unlawfully targeted for expressing "political viewpoints." His conclusion was based on a review of agency records that have not been previously reported and provide a remarkable window into the partisanship of federal bureaucrats.

"The documents I reviewed make clear that the CFPB lacked a sufficient factual predicate for the seven-year saga to which it subjected Defendant Townstone," Bishop wrote in the motion. "Those documents also make clear that agency lawyers … were affected by animus toward the publicly expressed viewpoints of Townstone’s owner [Barry Sturner]."

The case, which began during the first Trump administration, centered on a company-hosted radio show that Townstone used to advertise its services. In five episodes over a three-year period—0.33 percent of the company’s recorded content—the hosts had also made a handful of comments alluding to inner-city crime.

The CFPB cited those comments when it opened an investigation of Townstone in 2017, arguing that the radio banter may have discouraged minorities from applying for credit. Though a consumer testing firm found that African Americans were not offended by the banter—and were, in fact, more likely to seek out Townstone’s services after hearing it—the bureau ignored the firm’s report and sued Townstone for "redlining" in 2020.

 It was the first such complaint the agency had filed against a non-bank lender. At the time, Townstone had just two employees.

The ensuing David-and-Goliath battle became a case study of how federal bureaucrats can bully small businesses for protected speech, using the penumbra of civil rights law to circumvent the First Amendment. Settlements with CFPB often reach well into the seven figures—the agency initially proposed a $1 million penalty for Townstone because of its "small size," according to documents quoted in the motion—and do not include the six-figure attorneys’ fees that defendants typically pay over the course of litigation.

Given those costs, most businesses in Townstone’s position settle quickly to avoid the possibility of damages. Sturner only fought the lawsuit because he was represented pro-bono by Pacific Legal Foundation, which eventually secured a much smaller penalty—$105,000—than the one the bureau had initially proposed.

Even so, the case dragged on for years and created a media firestorm around Townstone. Wednesday’s motion reveals new details about how career staff picked the small mortgage company as a target, providing a blow-by-blow account of the way partisan preferences shaped the enforcement actions of a supposedly nonpartisan agency.

The documents show, for example, that career staff monitored Sturner’s social media posts as part of its investigation. And they raise the possibility that the bureau targeted Townstone because the company’s executives, including Sturner, had a habit of criticizing the agency.

While the penalty against Townstone was imposed by the Biden administration, the documents also show how career staff can steer the bureaucracy in a left-wing direction under any president—even one who campaigned in 2016 on combating the "deep state."

At the request of OMB director Russ Vought, who is also the acting head of the CFPB, Bishop reviewed a tranche of internal records related to the Townstone case. The records include a 2018 memo in which career staff recommended that the agency continue its investigation—and noted that Sturner had repeatedly criticized the bureau on his radio show.

"Much of the content of the show is overtly political, and often highly critical of the Bureau," the memo reads.

Officials also noted that Sturner would encourage loan officers to promote "mortgage products geared toward … low-income applicants" and had even "employed Chinese- and Spanish-speaking ethnic minority loan officers to do outreach to non-English-speaking communities." He had not, however, employed a black loan officer.

That omission, coupled with the radio show’s content and the fact that Townstone had provided relatively few loans in minority areas, were cited as reasons to press on with the probe.

The agency made no effort to hide the fact that it was interested in Townstone's speech. A continued investigation, the memo read, would "provide an opportunity" to suss out "Townstone’s views on race and racism."

That’s exactly what the CFPB did. By June 2020, a month before the bureau filed its lawsuit, officials were keeping files on Sturner’s social media posts, many of which were critical of the protests that erupted that summer after the death of George Floyd. One file captured a post in which Sturner expressed opposition to looting. Another’s filename described posts about the police as "BS."

The records provide strong evidence that the CFPB engaged in "impermissible" targeting, Bishop wrote in the motion. They also reveal that the bureau, which accused Townstone of violating the Equal Credit Opportunity Act, wanted the company to adopt a series of race-conscious programs as part of a proposed settlement agreement.

Outlined in a 2019 memo to the agency’s director at the time, Kathy Kraninger, the agreement would have required Townstone to engage in "targeted recruitment of African-American" loan officers, offer bonuses "for generating applications from [black communities]," and provide racially targeted loan subsidies. The memo did not acknowledge that the Supreme Court had expressly discouraged such measures a few years earlier, holding in a 2015 case that remedies for discrimination should be "race-neutral" whenever possible.

The Townstone case "turned on misstatements and omissions of requested information about law and fact," Bishop wrote in the motion, which was jointly filed with Townstone. "Considering that record and the revelations in this declaration, the CFPB supports vacating the consent judgment, dismissing the claims, and permitting the agency to return to Townstone the civil penalty Townstone paid."

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