City of Philadelphia Decides to Sue Wells Fargo over Discriminatory Lending

July 31, 2017 by Ruby Keys

Wells Fargo is on the legal hot seat again over alleged discriminatory lending practices after the City of Philadelphia filed suit in federal court against the bank. Once again, they are facing predatory lending allegations similar to a prior case where the federal Court of Appeals ruled in Wells Fargo’s favor.

The Prior Case

The City of Los Angeles initiated a lawsuit four years ago against Wells Fargo, Citigroup, and Bank of America for discriminatory lending practices, claiming that the national banks violated the Fair Housing Act and were primarily responsible for a majority of foreclosures that plagued the city. However, in 2015, a federal district judge threw out the lawsuit after deciding that the City of Los Angeles failed to prove that the damages caused by foreclosures were due to the improper lending practices of the banks.

The attorney for the City of Los Angeles appealed the ruling, but the Court of Appeals for the Ninth Circuit upheld the decision of the lower court. A three-judge panel ruled unanimously in favor of Wells Fargo in a four-page decision stating that Los Angeles “did not show a discriminatory loan” was originated during the period indicated in the suit.

According to pleadings filed with the Court, the City of Los Angeles claimed that Wells Fargo conducted loan operations with three distinct policies designed to force minority borrowers into more expensive home loan products. The higher cost loans for low-income borrowers were coupled with Wells Fargo incentive programs that rewarded loan originators for steering borrowers into unaffordable lending options. The City also asserted that as part of the scheme, Wells Fargo utilized specially designed marketing campaigns to target low-income, minority borrowers and then failed to adequately monitor loan originations to identify problematic trends as they were occurring.

The Court of Appeals, however, found that the City had failed in its attempt to show a connection between the first two policies and how they targeted minority borrowers. The Court of Appeals found that the loan products offered would affect all borrowers equally, regardless of race or other racially-driven factors.

As part of its case, the City claimed that due to the banks’ actions, the City of Los Angeles saw a wave of home foreclosures in minority neighborhoods and that the blight and loss of tax revenue caused irreparable damages to the City. However, the Appellate Court ruled that those damages did not “confer a benefit” to Wells Fargo, rejecting the “unjust enrichment” claim made by the City of Los Angeles.

In a statement, Wells Fargo praised the Appellate Court’s decision stating, “We are pleased with the appellate court’s very quick decision to uphold the district court’s thoughtful ruling and to confirm the dismissal of the Los Angeles City Attorney’s mortgage case against Wells Fargo.”

The Philadelphia Case

The Philadelphia suit was filed only two weeks after the Supreme Court ruled that cities could sue lenders under the Fair Housing Act for alleged discrimination in lending practices, if they could prove (1) a “direct link” to an increase in neighborhood blight, (2) a rise in crime, and (3) the city receiving less property tax revenue due to the bank’s actions.

In its complaint, the City of Philadelphia alleges that Wells Fargo steered minority borrowers into high-risk loan products, even though Wells Fargo had similar qualification criteria for white borrowers. The City also claims that Wells Fargo refused to allow minority homeowners the option to refinance, which led to a higher rate of default, that consequently resulted in more foreclosures.

“The city’s unsubstantiated accusations against Wells Fargo do not reflect how we operate,” a Wells Fargo spokesman said in a statement. “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.”

The City of Philadelphia’s suit seeks an injunction against Wells Fargo utilizing any future discriminatory lending practices and also requests monetary damages in an amount to be determined at trial.