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Thursday, July 12, 2012

Wells Fargo to Pay $175 Million Settlement for Racist Lending Practices

Posted By on Thu, Jul 12, 2012 at 11:15 AM

click to enlarge The good ol' days, when stagecoaches tore through the frontier and a bank wouldn't be sued for racist lending practices.
  • The good ol' days, when stagecoaches tore through the frontier and a bank wouldn't be sued for racist lending practices.

Wells Fargo, the San Francisco-based banking giant, has agreed to pay a $175 million settlement for discriminatory lending practices where black and brown people were charged higher interest rates than white people, the Justice Department announced today.

"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," Assistant Attorney General Thomas E. Perez said at a press conference.

Those borrowers, he added, "paid, on average, tens of thousands of dollars more for their loans and were subject to possible prepayment penalties, increased risk of credit problems, default, and foreclosure."

The DOJ, in its lawsuit, claimed that between 2004 and 2009 the bank "discriminated by charging approximately 30,000 African-American and Hispanic wholesale borrowers higher fees and rates than non-Hispanic white borrowers because of their race or national origin rather than the borrowers' credit worthiness or other objective criteria related to borrower risk."

"Wholesale borrowers" means that the mortgage loan passed through third-party brokers -- smaller lenders or independent financiers. As part of the settlement, the bank does not have to admit it did anything wrong. Rather, it is only copping to setting low standards for the brokers who bought loans from the bank's wholesale division.

Wells Fargo, in the proposed consent decree, asserts that "it has treated all of its customers fairly" and claims that no "employee of Wells Fargo discriminated intentionally on the basis of race or national origin."

According to the settlement, $125 million will go toward compensating Well Fargo's wholesale borrowers who were found to have been victims of the discriminatory practices. The other $50 million will go into a program that helps people make down payments on homes or renovate their properties in eight metropolitan areas around the country, including the San Francisco Bay Area.

Well Fargo shareholders don't need to fret, though; the bank generated more than $15 billion in net income in 2011.

This is at least the third time in the past year that a major bank has settled with the Feds to resolve allegations of racist practices. In May, SunTrust Bank's mortgage subsidiary settled for $21 million. In December, Bank of America paid $335 million because of reported discrimination by Countywide Financial, which it purchased in 2008.

[For more on how discriminatory lending practices have affected local homeowners, see our May feature story, "The Dispossessed."]

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