Judge green lights amended predatory lending suit against Wells Fargo

By Real Estate News

A federal judge in Georgia has given the green light for an amended “predatory lending” lawsuit to proceed against Wells Fargo. The lawsuit was filed under the Fair Housing Act by three counties in Georgia. 

The counties initially filed the lawsuit in April 2021, claiming that Wells Fargo and some of its related entities engaged in a broad predatory lending scheme that targeted minority residents in Cobb, DeKalb and Fulton counties. 

According to the complaint, Wells Fargo allegedly engaged in an “equity stripping” scheme that was “a combination of predatory and discriminatory lending, servicing, and foreclosure practices over the life of a mortgage.”

The lawsuit also alleges that Wells Fargo originated high-cost loans to minorities at a rate of 2.3 times higher than for non-minorities. 

The complaint was initially dismissed last March by U.S. District Judge Michael L. Brown, who ruled that the counties failed to allege Wells Fargo engaged in any discriminatory acts within the two-year period covered under the Fair Housing Act.

However, the judge allowed the counties to amend and resubmit the lawsuit, ruling last week that the new complaint can move forward. 

The amended complaint cites 30 different loans originated, serviced and/or foreclosed on by Wells Fargo. The lender asked the court to dismiss the amended suit, citing that the statute of limitations had expired, but Judge Brown ruled that the 10 loans identified by the counties fell within the correct time frame.

The counties allege in the lawsuit that Wells Fargo and its related entities began the purported “discriminatory scheme” at the point of loan origination by forcing “borrowers to pay higher costs and improper fees.”

Per the lawsuit, this “continued throughout the life of the loans as borrowers paid inflated interest rates, manifested through the imposition of prepayment penalties when borrowers refinanced or paid off loans, progressed into default when [Wells Fargo] subjected borrowers to fees and costs, and culminated in foreclosure.”

The counties state in the lawsuit that the borrowers’ names on each of the loans reflect that the borrower is likely “African American, Latino/Hispanic, or [another] minority,” and that census data shows each property was located within a mostly minority neighborhood, according to the ruling.

The counties also provided the court with three “heat maps,” which they say show a difference in foreclosure rates between neighborhoods with mostly minority residents compared to neighborhoods with mostly white residents. 

The heat maps allegedly show the foreclosure rate in Fulton County was 3.5 times higher in neighborhoods with large percentages of minority residents compared to mostly white neighborhoods. That rate was five times higher in DeKalb County and 18% higher in Cobb County, according to the lawsuit.

The amended allegations are enough, at least at the pleading stage, to establish the 10 loans were part of the three counties’ “purported discriminatory scheme” — and that they undertook a discrete action in furtherance of that scheme within the limitations period, Brown said. 

“To move past summary judgment on the merits, Plaintiffs will have to present evidence of this overarching scheme, and alleged discrimination in origination may not be enough to establish conduct within the statutory period,” Judge Brown said. 

A hearing is scheduled for April 18 to discuss how discovery should proceed.

“As part of this, the Court is considering whether discovery should begin with the 10 loans discussed above or some other subset of loans so as to focus initially on whether Defendants’ alleged discriminatory scheme continued beyond April 30, 2019,” the ruling states. 

According to Wells Fargo, the claims outlined in the lawsuit are unfounded.

“While we are disappointed in the rulings, Wells Fargo continues to believe that the counties’ claims regarding our lending practices are unfounded and will continue to defend this case,” Wells Fargo’s spokesperson said in an e-mailed response. 

Wells Fargo has been under fire numerous times in the past over discriminatory lending allegations.

In late 2022, Wells Fargo agreed to pay a civil penalty of $1.7 billion in order to settle multiple consent orders related to automobile lending, consumer deposit accounts and mortgage lending with the Consumer Financial Protection Bureau (CFPB).  

According to the CFPB, Wells Fargo repeatedly misapplied loan payments, wrongfully foreclosed on homes, illegally repossessed vehicles and charged surprise overdraft fees, which affected 16 million customers’ accounts.

In April 2022, the bank was sued for allegedly approving more white borrowers for mortgage loans compared to Black applicants following the creation of the federal CARES Act, which helped to drop interest rates down to historic lows. 

In 2012, the bank agreed to pay at least $175 million to settle accusations that it unfairly steered Black and Hispanic homeowners into subprime mortgages and charged them higher fees and interest rates. Wells Fargo said at the time that it treated all customers fairly regardless of race.