Philadelphia Sues Wells Fargo Over Discriminatory Lending Practices

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On Monday, Philadelphia filed a federal lawsuit against Wells Fargo asserting that the bank has engaged in discriminatory lending practices against black and Latino home loan borrowers.

The lawsuit alleges that since 2004, Wells Fargo has operated in violation of the Fair Housing Act by pushing black and Latino borrowers towards high-cost or high-risk loans even when those borrowers were eligible for more favorable options.

The complaint further claims that Wells Fargo incentivized employees who steered minority borrowers to the risky and high-cost loans and specifically calls out Wells Fargo’s “lender credit” loan. The credit allows the bank to pay a borrower’s closing costs upfront but the borrower would have to accept a loan with a higher interest rate.

The city investigated Wells Fargo’s lending practices through an analysis of available loan data, which found that the practices disproportionately impacted minorities. About 23 percent of loans from Wells Fargo to minority customers in Philadelphia were high-cost or high-risk, while only eight percent of loans made to white customers were high-cost or high-risk.

“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,” said City Solicitor Sozi Pedro Tulante. “The Law Department must take action in light of this evidence and halt these discriminatory practices on behalf of the citizens of Philadelphia.” 

The lawsuit cites a number of additional data points that reveal how the bank’s practices affect minority borrowers. For example, a loan in a predominantly minority neighborhood is 4.7 times more likely to result in foreclosure than is a loan in a predominantly white neighborhood. And even minorities with decent FICO credit scores weren’t safe from discrimination, the city found. Black people with scores greater than 660 were 2.5 times more likely than their white counterparts to receive a costly or risky loan; Latinos were 2.1 times more likely.

In a statement to Philadelphia magazine, Wells Fargo spokesman James Baum said, “The city’s unsubstantiated accusations against Wells Fargo do not reflect how we operate in Philadelphia and all of the communities we serve.”

He added: “Wells Fargo has been a part of the Philadelphia community for more than 140 years and we will vigorously defend our record as a fair and responsible lender.  We will continue to focus on helping customers in Philadelphia and its surrounding communities succeed financially, and on expanding homeownership in Pennsylvania and across the United States.”

Tulante filed the complaint in the United States District Court for the Eastern District of Pennsylvania, seeking “equitable relief” in the form of an injunction to curb Wells Fargo’s practices. The city also seeks monetary damages for loss of property tax revenue and compensation for non-economic injuries related to foreclosures.

Mayor Kenney praised the decision to sue Wells Fargo in a statement released on Monday. “I am proud that the city is committed to fighting against practices that unfairly impact its minority population and have drained resources from all Philadelphia neighborhoods,” he said.

The city recently rejiggered its relationship with Wells Fargo, which is currently Philly’s largest bank by deposits and the country’s largest mortgage originator. Last week, City Council voted to sever its longstanding ties to Wells Fargo as the city’s payroll handler. Councilwoman Cindy Bass called the bank the “antithesis of corporate social responsibility.” Citizens Bank will replace Wells Fargo partly for its community development plan that will create initiatives for the city’s low and moderate income families, individuals and minority small businesses.

Philadelphia joins cities like Los Angeles, Baltimore and Miami that have all previously filed similar lawsuits against Wells Fargo. In 2012, the financial institution promised to pay Memphis $432 million to settle a lawsuit that accused it of discriminatory practices.

Ruling on whether Miami can sue Wells Fargo and Bank of America, the Supreme Court decided at the beginning of the month that cities can in fact sue big banks over the effects of discriminatory practices. According to the ruling, Philly will have to prove that there is a direct link between Wells Fargo’s practices and the revenue loss that it claims.

“The U.S. Supreme Court’s recent ruling in the City of Miami case means that, for Fair Housing Act claims, financial institutions cannot be held responsible for harm they didn’t cause,” Baum told Philadelphia magazine. “These types of cases have been pending in other states and have been rejected by all courts who have addressed the merits of the claims.”

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