(Reuters) - The top U.S. consumer financial watchdog agency on Friday said it had reached a settlement in a long-running lawsuit with a Chicago mortgage lender over alleged racial discrimination.

Under the terms of the proposed agreement, Townstone Financial would pay a $105,000 fine into the U.S. Consumer Financial Protection Bureau's victims relief fund.

In a statement on its website, the Pacific Legal Foundation, which represented Townstone, said the company neither admitted nor denied the allegations and settled due to government's superior legal resources. "This case should never have been brought," attorney Steve Simpson said.

WHY IT MATTERS

The CFPB says the enforcement action follows the agency's July legal victory before the U.S. Seventh Circuit Court of Appeals, which gave it new freedom to fight racial discrimination not only in lending but also in marketing of loans. It is the agency's second action on racial bias in the mortgage industry in less than three weeks.

KEY QUOTE

"The CFPB's lawsuit against Townstone Financial included a major appellate court victory that makes clear that people are protected from illegal redlining even before they submit their application," CFPB Director Rohit Chopra said in a statement.

CONTEXT

In 2020, the CFPB accused Townstone Financial of discouraging Black people from applying for mortgages and avoiding the credit needs of African American neighborhoods in the Chicago area. In weekly marketing radio shows and podcasts, the company allegedly disparaged predominantly Black neighborhoods as crime ridden and the "jungle."

(Reporting by Douglas Gillison; Editing by Cynthia Osterman)