Philadelphia Sues Wells Fargo Over Discriminatory Lending Practices

Racial discrimination in mortgage lending is prohibited under the federal Fair Housing Act (FHA). But the city of Philadelphia says the practice is still alive and well at Wells Fargo.

The city filed suit against Wells Fargo on May 15 in the U.S. District Court for the Eastern District of Pennsylvania, saying the bank engaged in discriminatory lending practices that targeted minority borrowers.

The city claimed Wells Fargo violated the FHA by directing African American and Latino borrowers toward high-risk or high-cost loans even when their credit allowed them to obtain better loans. Using examples dating back to 2004, the city went on to allege that Wells Fargo knew and even incentivized marketing high-risk or high-cost loans to minorities.

The bank also incentivized the use of lender credit loans for minority borrowers, through which the bank pays a borrower’s closing costs in exchange for tacking a higher interest rate onto the loan, according to the complaint. With a lender credit loan, the borrower must continue paying the higher interest rate after the “lender credits” have been repaid, which creates revenue for the bank but no benefits for the borrower.

“The city of Philadelphia’s investigation revealed that both the resources of the city and the lives of Philadelphia’s citizens have been negatively affected by Wells Fargo’s discriminatory lending practices,” City Solicitor Sozi Pedro Tulante said in a statement.

“The Law Department must take action in light of this evidence and halt these discriminatory practices on behalf of the citizens of Philadelphia.”

The city says it wants “equitable relief,” which could include an injunction that requires Wells Fargo to stop discriminatory lending practices. The complaint also seeks monetary damages based on Philadelphia’s loss of revenue from unpaid taxes on abandoned properties and the reduction in collected taxes from the decrease in value of foreclosed properties and properties near foreclosures.

The basis of the complaint is an assessment of Wells Fargo’s lending practices and an analysis of available loan data. The analysis found that 23.3 percent of the loans Wells Fargo gave to minorities in Philadelphia were either high-risk or high-cost, compared to only 7.6 of loans for white customers.

“The practices of Wells Fargo disproportionately affected minority borrowers here in Philadelphia,” Mayor Jim Kenney said. “And because many of these loans resulted in foreclosures, all neighborhoods throughout the city suffered the harm.”

“Wells Fargo’s discriminatory practices of systemically targeting African American and Latino families took advantage of them and stole their security. Those actions must be redressed,” added Rue Landau, executive director of the Philadelphia Commission on Human Relations.

The city insists Wells Fargo’s predatory lending practices have an effect on minority bank customers in Philadelphia. An African American borrower is 2.1 times more likely to receive a high-cost or high-risk loan from the bank than a white borrower, while a Latino borrower is 1.6 times more likely, according to Philadelphia's assessment. An loan given to a customer in a predominantly minority neighborhood is 4.7 times more likely to end up in foreclosure than a loan in a predominantly white neighborhood.

Again, this practice even extended to minority borrowers with solid credit scores: African Americans with FICO scores above 660 were 2.5 times more likely to receive a high-cost or high-risk loan compared to a white borrower, while Latinos with scores above 660 were 2.1 times more likely, according to the analysis. 

The bank denied the allegations.

Wells Fargo spokesman James Baum told Philadelphia Magazine that the “city’s unsubstantiated accusations against Wells Fargo do not reflect how we operate in Philadelphia and all of the communities we serve.”

But this is not the first lawsuit against Wells Fargo for discriminatory lending practices to minorities.

The cities like Los Angeles, Oakland, Miami, Baltimore and Memphis, as well as the U.S. Department of Justice, have filed similar lawsuits against Wells Fargo. The U.S. Supreme Court ruled this month that cities are entitled to bring claims against banks under the FHA for discriminatory loan practices -- paving way for similar suits in the future. 

Image credit: Mike Mozart/Flickr