Philadelphia vs Wells Fargo: Allegations of Discriminatory Lending Practices

Philadelphia sues Wells Fargo for discriminatory lending.

Over the last few years, Wells Fargo has faced some very difficult challenges—primarily of its own making; most prominently, Wells former CEO resigned after the company was accused by regulators of establishing over 3 million accounts for customers without their consent.

In yet another blow to the company’s public image, last month, the city of Philadelphia sued Wells Fargo for discriminating against minority homebuyers. In a complaint filed in federal court in Pennsylvania, the city alleges that the bank violated the Fair Housing Act (FHA) of 1968. The suit alleges that Wells did so by ‘steering’ minority borrowers into mortgages that were ultimately both pricier and riskier than the types of mortgages offered to white borrowers.

Within the banking industry, the practice that the city of Philadelphia accuses Wells of doing is known as “redlining”—essentially, a decades old discriminatory lending practice that results in denying credit to borrowers in targeted communities dominated by certain races or ethnicities.

The lawsuit filed last month by Philadelphia alleges that between 2004 and 2014, African-American borrowers within the city were twice as likely to receive high-cost loans, compared to white borrowers with similar credit histories. Additionally, the suit alleges that Latino borrowers were 1.7 times as likely to receive expensive loans compared to white borrowers.

Not surprisingly, Wells has denied all of the city’s allegations.

A spokesman for the banking giant labeled the city’s lawsuit as “unsubstantiated accusations” that did not reflect how the bank “operates in Philadelphia, and all of the communities we serve.”

Wells has a long history of offering mortgages in the region, a fact pointed out by the company spokesman. “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”, he told the Washington Post.

In its legal complaint, the city of Philadelphia was quick to link these new allegations with Wells’ recent troubles. In the complaint, the city draws possible connections between the alleged predatory lending allegations and the hundreds of thousands of faux customer accounts, citing a “lack of internal controls” as the possible root of both problems.

Further adding to the strained relationship between the city and the banking giant, Philadelphia’s City Council recently voted to change the financial handler of its $2 billion payroll account from Wells to Citizens Bank.

The city claims that it has data that substantiates its allegations of discrimination by Wells Fargo. To that end, Philadelphia hired experts who discovered that 23.3 percent of the bank’s loans to minorities were ‘high risk’, compared to only 7.6 percent for white borrowers.

In their complaint, Philadelphia officials also noted that both the US Department of Justice, as well as several cities including Los Angeles, Miami, Baltimore and Memphis had already filed similar suits against Wells.

In its suit, Philadelphia is seeking “equitable relief”, which could also include monetary damages, on what the city believes to be loss of property tax revenue resulting from unpaid taxes on abandoned properties, among other lost taxation revenue. The city is also seeking compensation for “non-economic injuries” associated with foreclosures, such as the interference with the city’s ability to achieve non-discriminatory housing practices.

It’s worth noting that Wells Fargo is the Philadelphia region’s largest bank by deposits—with a market share in excess of 20 percent; the combined loss of the city’s payroll, with whatever losses the suit causes in the consumer market, has the capacity to make a significant impact on Wells’ regional bottom line.

Coming so soon in the wake of the ‘fake account’ scandal, regardless of the outcome of this lawsuit, one thing is certain: Wells Fargo will undoubtedly have a good deal of work to do to restore its once-solid image as one of the nation’s banking leaders.