Wells Fargo to pay $175 million to settle lending bias case
No 1. home lender Wells Fargo & Co. has agreed to pay at least $175 million to settle federal allegations that it systematically overcharged minorities during the frenzied housing boom, including steering African Americans and Latinos into more expensive subprime mortgages.
The agreement was announced Thursday by the Justice Department, which described it as the second-largest fair-lending settlement in the department’s history.
(In the largest, reached last December, Bank of America Corp. agreed to pay $335 million to settle claims against Countrywide Financial Corp., the aggressive Calabasas lender it acquired in 2008.)
Asst. Atty. Gen. Thomas E. Perez said “a simple story” was at the core of the Justice Department’s complaint against Wells Fargo.
“If you were African American or Latino,” Perez said in prepared remarks, “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.”
Norwest Corp. of Minneapolis, which took over Wells Fargo in 1998 and adopted Wells’ distinctive brand and San Francisco headquarters, had a large national subprime lending operation. The unit, which made auto and personal loans as well as mortgages, became a target for minority advocacy groups, which accused it of abusing lower-income borrowers.
Wells Fargo currently originates more than a third of all U.S. mortgages, more than the combined total of the next seven biggest home lenders. In a statement Thursday, it denied the government’s claims and said it was settling the case to avoid prolonged litigation with the Justice Department.
In remarks prepared for a news conference in Washington, Deputy Atty. Gen. James M. Cole said “systemic discrimination” occurred from 2004 through 2009 in Wells Fargo’s wholesale lending, which issued mortgages through independent brokers.
Violations of the Equal Credit Opportunity Act and the Fair Housing Act allegedly took place in at least 82 geographic markets across 36 states and the District of Columbia.
“This resulted in more than 34,000 African American and Hispanic wholesale borrowers paying an increased rate for loans simply due to the color of their skin – including approximately 4,000 African-American and Hispanic wholesale borrowers who were steered into subprime mortgages,” Cole said.
As part of the settlement, Wells Fargo is to pay $125 million to those borrowers, “who were victimized by its widespread practice of charging higher fees and rates to non-white borrowers,” Cole said.
The bank is to provide an additional $50 million in down payment assistance to residents who live in areas where the alleged discrimination had a significant impact.
Wells Fargo also agreed to monitoring and an internal review of its direct-to-consumer retail lending practices, Cole said.
Additional compensation may be paid to minority borrowers who received subprime loans from the retail division while white borrowers with similar credit profiles were offered prime loans.