The City of Philadelphia filed a lawsuit against Wells Fargo on Monday, alleging that the financial institution engaged in discriminatory lending practices that targeted minority homebuyers and ultimately resulted in increased foreclosures and lost tax revenue.
“The practices of Wells Fargo disproportionately affected minority borrowers here in Philadelphia,” said Mayor Jim Kenney in a statement. “And because many of these loans resulted in foreclosures, all neighborhoods throughout the City suffered the harm.”
Here’s what we know about City of Philadelphia v Wells Fargo & Co et al, U.S. District Court, Eastern District of Pennsylvania, No. 17-02203.
The city claims that since 2004, Wells Fargo has violated the Fair Housing Act, which was established in 1968 as a way to curb housing discrimination. The lawsuit alleges that Wells Fargo employees were incentivized to encourage African-American and Latino borrowers toward high-risk mortgages, even if they had good credit scores that would have allowed for more advantageous loans.
Wells Fargo called the allegations “unsubstantiated.” But the city found in an analysis that 23.3 percent of loans issued in Philadelphia to minority borrowers were high-cost or high-risk. Meanwhile, 7.6 percent of the same type of loans were issued to white borrowers.
The city cites six confidential informants who previously worked for the bank, according to the Inquirer.
Breaking it down even further, African-Americans were 2.1 times more likely and Latinos were 1.6 times more likely than white borrowers to be issued high-risk or high-cost loans. This discrepancy didn’t change even if minority borrowers had credit scores that were higher than 660.
A score between 580 to 669 is considered fair, and 670 to 739 is considered good.
As a result of this alleged targeting, the city says that home loans in predominately minority neighborhoods, including Olney, Northwest Philly, and Southwest Philly, were 4.7 times more likely to be foreclosed.
There’s precedent for this lawsuit
Philly is not the first city to have filed a lawsuit against Wells Fargo. Los Angeles, Oakland, Baltimore, Memphis, and Miami have sued the financial institution for similar reasons. Most recently, the U.S. Supreme Court ruled that cities can sue banks for predatory lending practices.
What’s the next step?
According to the city’s statement, it’s seeking “equitable relief.”
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 city is also asking residents with information relevant to the allegations to contact the law department at FHALawsuit@phila.gov.