The Seventh Circuit reverses district court and holds that ECOA imposes liability for discouraging prospective applicants from applying for credit

In Consumer Fin. Prot. Bureau v. Townstone Fin., Inc., No. 23-1654 (7th Cir.) the CFPB sued a non-depository mortgage lender contending it violated the Equal Credit Opportunity Act (“ECOA”). Specifically, it alleged the lender violated ECOA’s, “Regulation B,” which prohibits creditors from discouraging applicants or prospective applicants from applying for credit.

The lender broadcasts and advertises on a radio show and podcast where it discusses mortgage related issues. According to the CFPB, the lender regularly made statements on the show that would discourage black prospective applicants from applying for mortgage loans. The complaint also cited statistical information that the lender’s acts and practices led to less black prospective applicants applying for credit than would have been the case in the absence of these discriminatory practices.

The lender moved to dismiss the complaint. It posited that ECOA defines “applicant” as “any person who applies to a creditor directly for an extension, renewal, or continuation of credit, or applies to a creditor indirectly by use of an existing credit plan for an amount exceeding a previously established credit limit”. By this definition “it is clear that the ECOA does not apply to prospective applicants” but only persons who actually apply for credit. The district court agreed with this reasoning. And because all the claims depended on a finding that ECOA covered prospective applicants, it dismissed the suit in its entirety.

The Seventh Circuit reversed. After outlining the history of ECOA, the Court framed the issue as whether Regulation B’s prohibition on the discouragement of prospective applicants is consistent with the ECOA. The Court read the statute “‘as a whole’ rather than ‘as a series of unrelated and isolated provisions.’” In doing so it was clear to the Court that the text prohibits not only outright discrimination against applicants for credit, but also the discouragement of prospective applicants for credit.

It noted that Congress vested the Federal Reserve Board (and later the CFPB) with the authority to issue regulations “necessary or proper to effectuate the purposes of this title” or “to prevent circumvention or evasion thereof.” In endowing the Board with this authority, Congress thus intended ECOA to be construed broadly to effectuate its purpose of ending discrimination in credit applications. Other provisions also strongly confirm that discouraging applications for credit constitutes a violation of the statute. For example, when Congress amended its civil liability provision so that the regulatory agencies responsible for enforcing ECOA were required to refer a case to the Attorney General whenever the agency believed a creditor “has engaged in a pattern or practice of discouraging … applications for credit in violation of section 1691(a) of this title,” 15 U.S.C. § 1691e(g), it thus confirmed that discouraging an application for credit violated the ECOA. “Reading the statutory language as a whole, including the strong congressional direction that the cognizant agencies and the Department of Justice prevent ‘circumvention and evasion,’ makes clear that the prohibition against discouragement must include the discouragement of prospective applicants”. Because ECOA was intended to prohibit discrimination “with respect to any aspect of a credit transaction,” the term “‘applicant’ cannot be read in a crabbed fashion that frustrates the obvious statutorily articulated purpose of the statute”. Regulation B is therefore consistent with the ECOA’s text and purpose

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