Earlier this month, the Supreme Court ruled that cities have the right to sue banks over discriminatory mortgage lending practices, but the ruling established a standard that might be tough for the city in question to prove.

Now, one city is going to put that standard to the test.

The city of Philadelphia announced Monday that it is suing Wells Fargo for alleged discriminatory lending practices against minority borrowers.

Philadelphia’s announcement specifically cites the recent Supreme Court decision, which stemmed from a lawsuit brought by city of Miami against Bank of America, Citigroup, and Wells Fargo in 2013.

In its lawsuit, Miami claimed that the banks engaged in predatory lending to minority borrowers in the city, and accused the lenders of "reverse redlining," which led to a large number of foreclosures, lower property tax collections, and increased cost to the city to deal with the resulting property value loss and blight.

The Supreme Court ruling granted cities the right to sue banks under the Fair Housing Act, but established that the city must prove direct harm to itself caused by the lender’s actions.

Philadelphia is taking that challenge head-on.

According to the city’s announcement, its complaint alleges that beginning in 2004 through today, Wells Fargo violated the FHA by “steering African-American and Latino borrowers towards high-cost or high-risk loans even where those borrowers’ credit permitted them to obtain more advantageous loans.”

Philadelphia’s complaint also alleges that Wells Fargo was “aware and, in fact, incentivized the marketing of the high-cost or high-risk loans to minorities.”

According to the city, the incentivized loans included “lender credit” loans, in which Wells Fargo pays the borrower’s closing costs in exchange for receiving a loan with a higher interest rate.

Then, the borrower has to pay the higher interest rate well after the “lender credits” are repaid, which generates additional revenue for the bank with no additional benefits for the borrower, the city claims.

According to the city, its lawsuit is based on a review of Wells Fargo’s lending practices, the city’s applicable legal authority, and an analysis of available loan data by the city legal counsel. 

The city claims that that analysis found that 23.3% of loans Wells Fargo made to minority customers in Philadelphia were “high-cost or high-risk,” while only 7.6% of loans made to white customers were “high-cost or high-risk.”

Additionally, the city’s lawsuit claims that Wells Fargo’s lending practices have a “disparate impact” on minority borrowers in Philadelphia, including (claims direct from the city’s announcement):

• A loan in a predominantly minority neighborhood is 4.7 times more likely to result in foreclosure than is a loan in a predominantly white neighborhood

• African-American Wells Fargo borrowers were 2.1 times more likely to receive a high-cost or high-risk loan than a white borrower

• Latino borrowers were 1.6 times more likely to receive a high-cost or high-risk loan than a white borrower

• The disparity remained even among borrowers with FICO credit scores above 660 as African-Americans with FICO scores greater than 660 were 2.5 times more likely to receive a high-cost or high-risk loan than a white borrower and Latino borrowers with FICO scores greater than 660 were 2.1 times more likely to receive a high-cost or high-risk loan than a white borrower

“The practices of Wells Fargo disproportionately affected minority borrowers here in Philadelphia, and because many of these loans resulted in foreclosures, all neighborhoods throughout the city suffered the harm,” Philadelphia Mayor Jim Kenney said.

“I am proud that the city is committed to fighting against practices that unfairly impact its minority population and have drained resources from all Philadelphia neighborhoods,” Kenney continued. “And I particularly thank members of City Council who have long battled predatory lending in their districts and across the entire city.”

Wells Fargo, for its part, denies the city’s allegations and says it intends to fight the charges.

“The city’s unsubstantiated accusations against Wells Fargo do not reflect how we operate in Philadelphia and all of the communities we serve,” a Wells Fargo spokesperson said in a statement to HousingWire.

“The U.S. Supreme Court’s recent ruling in the city of Miami case means that, for Fair Housing Act claims, financial institutions cannot be held responsible for harm they didn’t cause,” the spokesperson continued.

“These types of cases have been pending in other states and have been rejected by all courts who have addressed the merits of the claims,” the spokesperson added.

“Wells Fargo has been a part of the Philadelphia community for more than 140 years and we will vigorously defend our record as a fair and responsible lender,” the spokesperson concluded. “We will continue to focus on helping customers in Philadelphia and its surrounding communities succeed financially, and on expanding homeownership in Pennsylvania and across the United States.”

The city said that its complaint is seeking “equitable relief,” which could include an injunction requiring Wells Fargo to stop engaging in discriminatory lending practices. 

The city is also seeking monetary damages based on the city’s loss of property tax revenue resulting from unpaid taxes on abandoned properties, along with the reduction in tax collections due to the decrease in value of foreclosed properties and properties in proximity to foreclosures. 

Philadelphia 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 said.

“The city of Philadelphia’s investigation revealed that both the resources of the city and the lives of Philadelphia’s citizens have been negatively affected by Wells Fargo’s discriminatory lending practices,” said Philadelphia City Solicitor Sozi Pedro Tulante. “The Law Department must take action in light of this evidence and halt these discriminatory practices on behalf of the citizens of Philadelphia.”