Wells Fargo to pay Philly $ 10 million to resolve lawsuit alleging loan discrimination against minorities
Wells Fargo & Co. agreed to pay the city of Philadelphia $ 10 million to settle a federal lawsuit that alleged the bank had discriminated against minority borrowers – an issue that has attracted more attention in recent years while studies and surveys have repeatedly found the barriers to equitable housing that exist for minorities across the country.
The deal, announced by the city on Monday, resolves a 2017 lawsuit that Philadelphia pitted against the San Francisco-based bank, which has been ranked for years as one of the region’s largest. Philadelphia alleged that Wells Fargo violated the Fair Housing Act by directing African American and Latino borrowers to riskier and more expensive mortgages than those offered to white homebuyers in the same situation. This, in turn, accelerated foreclosures and the number of abandoned properties, according to the complaint, which “suppressed property values … reduced the city’s property tax revenues and increased the cost of providing municipal services.”
The lawsuit also alleged that Wells Fargo had refused to extend credit to minority borrowers seeking to refinance their risky loans, or would instead refinance on terms less favorable than those granted to white borrowers.
As part of the settlement agreement, Wells Fargo did not accept responsibility. In a statement, the bank said it “strongly contests the city’s allegations in the lawsuit regarding the claims under the Fair Housing Act.”
The $ 10 million deal with the bank will be used to fund several existing urban housing programs, officials said, all of which aim to promote and preserve homeownership for low and moderate income residents. The settlement agreement also states that Wells Fargo and the city will work together to conduct a program called “Understanding Philadelphia” for employees who work at Wells Fargo Home Mortgage in the area, which “will analyze the history of the housing market in [Philadelphia], the various neighborhoods of the city and the current housing needs of the city’s residents.
Wells Fargo’s deal with Philadelphia crowns part of a legal saga that has eclipsed the bank in recent years, as allegations of fraud and misconduct have escalated. More specifically, the bank was sued by a scandal which revealed that employees fraudulently opened millions of fake bank and credit card accounts to meet sales targets. To do this, Wells Fargo paid hundreds of millions of dollars in settlements.
The 2017 lawsuit by Philadelphia was unrelated to the Wells Fargo accounts scandal, although it alleged that the “systemic issues within Wells Fargo that allowed illegal sales practices to flourish” also “allowed to Wells Fargo to engage in the illegal mortgage model and long-standing practice. loan. ”The city’s complaint alleged that Wells Fargo’s discrimination against minorities had been a problem since 2004 and found that, according to data, African-American borrowers in Philadelphia with a credit score above 660 were close to 2.6 times more likely to receive a more expensive or risky loan than a white borrower with similar characteristics A Latino borrower, according to the lawsuit, was almost 2.1 times more likely.
Wells Fargo has faced similar allegations of discriminatory loans elsewhere. In 2012, the bank agreed to pay at least $ 175 million to address federal claims that it steered minorities into more expensive loans.
Claims of racial discrimination in mortgages date back almost a century – and have affected lenders beyond Wells Fargo, with the practice of “redlining” or denying loans in certain neighborhoods proliferating for much. 1900s. Redlining eventually gave way to a practice called “reverse redlining,” in which residents of these neighborhoods had access to credit, although many loans were risky.
Housing discrimination is illegal under the Fair Housing Act, which was passed over five decades ago.
In a statement included in the city’s announcement, Joe Kirk, president of the Wells Fargo Regional Bank for Greater Philadelphia, said the bank was “pleased that we were able to resolve this matter in a way that will provide real and tangible opportunities for sustainable home ownership. for many low and moderate income residents of Philadelphia.
City attorney Marcel S. Pratt said in a statement that the resolution would help bring “relief to the neighborhoods that have been the subject of the litigation, which were communities of color that continue to face hardship. challenges ”.
“The resolution will provide much-needed benefits to the city’s low and moderate income residents, including enabling homeownership, which is one of the most effective ways for families to accumulate wealth in America.” , continued Pratt.
Officials say $ 8.5 million of the settlement will be used to provide down payment grants and closing cost assistance through a program called the Philly First Home Program, launched this year. This program offers grants of up to $ 10,000 to support first-time buyers or the Philadelphians who haven’t owned a home in the past three years.
To qualify, a couple must earn less than $ 86,520 and there is no requirement that the buyer have received a loan from Wells Fargo. In October, the city said 500 homes had been purchased through the program.
Additionally, city officials said, an additional $ 1 million from the agreement with Wells Fargo will be used for the city’s residential mortgage foreclosure prevention program, which aims to prevent foreclosures by pairing homeowners who are in default with housing counselors trying to negotiate loan modifications with lenders. Last year, more than 11,000 homes were saved thanks to the program.
The remaining $ 500,000 from the settlement will be used to revitalize vacant lots through cleanup and greening efforts, the city said. Neither the city nor its lawyers will receive settlement funds, Wells Fargo said.