Wells Fargo settles discriminatory lending claims
Wells Fargo, one of the largest mortgage lenders in the United States, will pay $125 million to settle claims of discriminatory lending practices against African-American and Hispanic borrowers.
The Justice Department alleged that Wells Fargo had “engaged in a pattern or practice of discrimination on the basis of race or color” in violation of the Fair Housing Act and Equal Credit Opportunity Act. The department’s investigation found that African-American and Hispanic borrowers were more likely to be charged higher fees or directed to unfavorable subprime mortgages than white borrowers with similar credit backgrounds.
“If you were African-American or Latino, you were more likely to be placed in a subprime loan or pay more for your mortgage loan, even though you were qualified and deserved better treatment. This is a case about real people – African American and Latino – who suffered real harm as a result of Wells Fargo’s discriminatory lending practices,” said Assistant Attorney General Thomas E. Perez.
Although Wells Fargo has agreed to the $125 million settlement, the company denies the Justice Department’s allegations, maintaining that “it has treated all of its customers fairly and without regard to impermissible factors such as race and national origin.”
Under the terms of the settlement, Wells Fargo will provide another $50 million to homebuyer assistance programs in cities hit hardest by the housing crisis, including the Washington, D.C., Chicago, Philadelphia, San Francisco, and Cleveland metro areas.
The settlement will provide some monetary relief to an estimated 34,000 African-American and Hispanic borrowers who, according the Justice Department, fell victim to Wells Fargo’s discriminatory lending practices between Jan. 1, 2004 to Dec. 31, 2009.
Allegations against Wells Fargo
According to the Justice Department, African-American and Hispanic borrowers were 4 and 3 times, respectively, more likely to be steered to a subprime loan than white borrowers with the same credit qualifications.
Because Wells Fargo’s policies gave wide discretions to loan brokers, many African-American and Hispanic homebuyers were placed in costly subprime loans even if they qualified for prime loans.
Subprime loans often carry unfavorable terms for the borrowers, such as higher interest rates or pre-payment penalties that charge borrowers hefty fees if they sell their homes and repay their mortgages too early.
In addition, African-American and Hispanic borrowers were often charged much higher loan fees than their white counterparts.
“The higher borrowing costs that Wells Fargo imposed on thousands of African-American and Hispanic families – whether paid as higher up-front fees, unfavorable loan products, pre-payment penalties, or otherwise – put increased economic burden on those families,” the complaint stated. “The economic burdens and risks, including the increased risk of delinquency or foreclosure, were particularly high.”
- Justice.gov: Assistant Attorney General Thomas E. Perez Speaks at the Wells Fargo Press Conference
- Justice.gov: Deputy Attorney General James M. Cole Speaks at the Wells Fargo Press Conference
- Justice.gov: United States v. Wells Fargo consent order – July 12, 2012 (PDF)
- Justice.gov: United States v. Wells Fargo complaint – July 12, 2012 (PDF)
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