Philadelphia’s Lawsuit Against Wells Fargo Explained
On May 15th, 2017, Philadelphia filed a lawsuit against Wells Fargo for predatory lending targeted at minority borrowers. As explained by litigation attorney Karl Heideck, they are claiming that this is a violation of the Fair Housing Act of 1968. The complaint filed states that this began in 2004, and continued for almost 13 years. The bank allegedly steered African-American and Latino customers toward high-interest loans, although they were fully qualified for more attractive loan terms. Incentives for these mortgages include the bank paying the borrower’s closing costs, with the loan carrying a higher interest rate as a result. This equates to the borrower paying more money to Wells Fargo, with no benefits to the borrower for doing so.
What Are The Allegations?
The city alleges that the mortgage lender steered minorities toward high-interest rate loans even though they were fully qualified for more affordable loan terms with a lower interest rate. They also allege that Wells Fargo made it difficult for these loans to be refinanced. As a result, a higher percentage of minority borrowers faced foreclosure as compared to non-minority borrowers with the same loan terms. Philadelphia is seeking monetary damages due to the complaint, and they also would like an injunction against Wells Fargo to force the bank to stop discrimination. The city states that Wells Fargo was fully aware that they were illegally targeting minority borrowers, and they provided incentives for marketing high-risk loans to these borrowers. These incentives are known as “lender credits”, and that the bank continued to charge higher interest rates long after these credits were repaid.
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What Exactly Did Wells Fargo Do?
Philadelphia is claiming that Wells Fargo engaged in a practice called redlining, drawing a red line around neighborhoods in which they don’t want to lend money to the residents. They claim that this was done due to a high percentage of minority residents seeking loans. Due to the city’s allegations that this was done to contribute to the racial content of the neighborhood, this practice is considered illegal. This discriminatory practice has resulted in increased foreclosure rates for minorities within the city of Philadelphia, as well as lost tax revenue. Redlining is illegal in this case, where it was done to contribute to the racial statistics of the city of Philadelphia.
Analysis And Investigation Of The Claims
An investigation of Wells Fargo’s lending history reveals that 23% of the loans extended to Philadelphia’s minority borrowers were considered high-risk. Only 7.6% of the loans made to white borrowers were considered high-risk loans. The lawsuit claims that Wells Fargo maximized their profits as a result.
Wells Fargo’s Reaction To The Lawsuit
Although the mortgage lender has not yet filed a legal answer to the allegations made against them, a spokesperson for the bank has stated that these allegations are not true. They claim that during their long history of providing mortgages to the residents of Philadelphia they have always maintained fair and legal lending practices.
Wells Fargo’s Legal Troubles
This is not the first time the mortgage lender has faced legal issues. Previously, fake consumer accounts were created by its employees so that they could meet sales goals. Wells Fargo is still feeling the effects of this situation.
Philadelphia took steps to make sure that they had legal standing when filing this lawsuit. They claim that the unethical practices of Wells Fargo hurt the city of 1.57 million people, with 55% of this population being minorities. Foreclosure was the result since many of these borrowers were refused the opportunity to refinance their loans. Property values declined, and higher crime rates resulted.
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