Lawsuit Alleges the Bank Targeted Minority Borrowers with High-Cost Loans
The City of Philadelphia has filed a federal lawsuit against Wells Fargo in the United States District Court for the Eastern District of Pennsylvania claiming that Wells Fargo has engaged in discriminatory lending practices that target minority borrowers. The Complaint alleges that commencing in 2004 and continuing through the present, Wells Fargo violated the federal Fair Housing Act (“FHA”) by steering African-American and Latino borrowers towards high-cost or high-risk loans even where those borrowers’ credit permitted them to obtain more advantageous loans.
The Complaint further alleges that Wells Fargo was aware and, in fact, incentivized the marketing of the high-cost or high-risk loans to minorities. The incentivized loans included “lender credit” loans that involve the Bank paying the borrower’s closing costs in exchange for receiving a loan with a higher interest rate. The borrower has to continue to pay the higher interest rate long after the ‘lender credits’ have been repaid, generating additional revenue for the Bank with no additional benefits for the borrower.
On May 1, 2017, the United States Supreme Court held that cities are legally entitled to bring claims against major lending institutions under the Fair Housing Act for discriminatory loan practices that resulted in increased foreclosures, lost tax revenue and increased use of government resources. The Court’s decision upheld bedrock legal principles under the FHA and re-affirmed the important role of cities in combatting housing discrimination within our communities.
The Complaint seeks ‘equitable relief,’ which may include an injunction requiring Wells Fargo to stop engaging in discriminatory lending practices. It also seeks monetary damages based on the City’s loss of property tax revenue resulting from unpaid taxes on abandoned properties, as well as the reduction in tax collections due to the decrease in value of foreclosed properties and properties in proximity to foreclosures. The City will also seek compensation for non-economic injuries associated with foreclosures, such as interference with the City’s ability to achieve its goals for non-discriminatory housing practices.
The Complaint is based on an assessment of Wells Fargo’s lending practices, applicable legal authority, and an analyses of available loan data by the City’s experts and outside counsel, including Lieff Cabraser. The analyses found that 23.3% of loans from Wells Fargo to minority customers in Philadelphia were high-cost or high-risk, while only 7.6% of loans made to white customers were high-cost or high-risk.
The U.S. Department of Justice and the cities of Los Angeles, Oakland, Miami, Baltimore, Memphis, and Miami Gardens, among others, previously filed similar lawsuits against Wells Fargo. The City of Philadelphia joins the growing list of municipalities that are committed to holding mortgage lenders accountable for the devastating consequences of their continuing pattern and practice of issuing predatory and discriminatory loans to minority residents.
For more information, visit the Unfair Bank Lending website.