The City of Philadelphia last Monday filed a federal lawsuit against Wells Fargo in the United States District Court for the Eastern District of Pennsylvania. The City’s Complaint asserts that Wells Fargo has engaged in discriminatory lending practices that target minority borrowers.
On May 1, 2017, the United States Supreme Court held that cities are legally entitled to bring claims against major lending institutions under the Fair Housing Act (“FHA”) for discriminatory loan practices that resulted in increased foreclosures, lost tax revenue and increased use of government resources. The Court’s decision upheld bedrock legal principles under the FHA and re-affirmed the important role of cities in combatting housing discrimination within our communities.
The complaint alleges that commencing in 2004 and continuing through the present, Wells Fargo violated the FHA by steering African-American and Latino borrowers towards high-cost or high-risk loans even where those borrowers’ credit scores permitted them to obtain more advantageous loans.
The Complaint also alleges that Wells Fargo was aware and, in fact, incentivized the marketing of the high-cost or high-risk loans to minorities. The incentivized loans included “lender credit” loans that involve the bank paying the borrower’s closing costs in exchange for receiving a loan with a higher interest rate. The borrower has to continue to pay the higher interest rate long after the ‘lender credits’ have been repaid, generating additional revenue for the bank with no additional 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,” 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 complaint seeks ‘equitable relief,’ which may include an injunction requiring Wells Fargo to stop engaging in discriminatory lending practices. It also seeks monetary damages based on the City’s loss of property tax revenue resulting from unpaid taxes on abandoned properties, as well as the reduction in tax collections due to the decrease in value of foreclosed properties and properties in proximity to foreclosures. The City will also seek compensation for non-economic injuries associated with foreclosures, such as interference with the City’s ability to achieve its goals for non-discriminatory housing practices.
“The practices of Wells Fargo disproportionately affected minority borrowers here in Philadelphia,” said Mayor Jim Kenney. “And because many of these loans resulted in foreclosures, all neighborhoods throughout the City suffered the harm. 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. And I particularly thank members of City Council who have long battled predatory lending in their districts and across the entire city.”
The complaint is based on an assessment of Wells Fargo’s lending practices, applicable legal authority, and an analyses of available loan data by the City’s outside counsel and their experts. The analyses found that 23.3% of loans from Wells Fargo to minority customers in Philadelphia were high-cost or high-risk, while only 7.6% of loans made to white customers were high-cost or high-risk.
“The family home provides a sense of financial security and a refuge from the challenges of life; purchasing a home is the most important investment a consumer can make,” said Rue Landau, Executive Director of the Philadelphia Commission on Human Relations. “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.”
The complaint shows that Wells Fargo’s lending practices have a disparate impact on minority borrowers in Philadelphia:
- 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.
- African-American Wells Fargo borrowers were 2.1 times more likely to receive a high-cost or high-risk loan than a White borrower.
- Latino borrowers were 1.6 times more likely to receive a high-cost or high-risk loan than a White borrower.
- The disparity remained even among borrowers with FICO credit scores above 660 as African-Americans with FICO scores greater than 660 were 2.5 times more likely to receive a high-cost or high-risk loan than a White borrower, and Latino borrowers with FICO scores greater than 660 were 2.1 times more likely to receive a high-cost or high-risk loan than a White borrower.
City Solicitor Sozi Pedro Tulante filed the lawsuit in federal court with outside counsel including Erwin Chemerinsky, Dean of the University of California at Irvine School of Law, Robert Peck, President of the Center for Constitutional Litigation, Berger & Montague P.C., Lieff Carbaser Heimann & Bernstein LLP, and Joel Liberson of Trial & Appellate Resources.
The U.S. Department of Justice and the cities of Los Angeles, Oakland, Miami, Baltimore, Memphis, and Miami Gardens, among others, previously filed similar lawsuits against Wells Fargo. The City of Philadelphia joins the growing list of municipalities that are committed to holding mortgage lenders accountable for the devastating consequences of their continuing pattern and practice of issuing predatory and discriminatory loans to minority residents.
Residents with information relevant to the City’s allegations that Wells Fargo engaged in discriminatory lending practices in Philadelphia may contact the Law Department at [email protected].