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
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
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.