Federal court: Wells Fargo must face Oakland’s mortgage discrimination lawsuit

Court trims lawsuit but allows it to proceed

Wells Fargo must face a lawsuit brought against the bank by the city of Oakland, California, which sued the bank in 2015 for allegedly steering minority borrowers into higher-cost loans, thereby causing rampant foreclosures and neighborhood blight.

The California city sued the bank nearly three years ago, claiming that Wells Fargo violated the Fair Housing Act by “targeting minorities” with high-cost loans despite their ability to qualify for lower cost loans.

According to a report from Bloomberg, the lawsuit has been on hold while a separate Fair Housing Act lawsuit worked its way through the courts.

Last year, the Supreme Court ruled that cities have 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.

That decision stemmed from a lawsuit brought by city of Miami against Bank of AmericaCitigroup, and Wells Fargo in 2013, which accused the banks of engaging in predatory lending to minority borrowers in the city.

After that decision, several cities began pursuing Fair Housing Act claims against lenders, notably Wells Fargo.

Last year, the city of Philadelphia sued Wells Fargo for allegedly “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,” citing the Supreme Court’s decision.

And earlier this year, the city of Sacramento accused the bank of violating the federal Fair Housing Act and the California Fair Employment and Housing Act 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.”

And now, Oakland’s lawsuit is being allowed to proceed after a federal judge ruled that Oakland “adequately alleged ‘a provable and quantifiable’ link between the bank’s lending practices and foreclosures that drove down property values and lowered tax revenues,” according to Reuters.

Bloomberg has more details about the case.

From the Bloomberg article:

Oakland provided significant statistical analysis to show how discriminatory lending practices at Wells Fargo could have resulted in a spike in foreclosures among black and Hispanic borrowers, U.S. District Judge Edward M. Chen of the U.S. District Court for the Northern District of California said.

Allowing Oakland’s property tax claims could potentially put Wells Fargo on the hook for millions of dollars in damages.

Although Wells Fargo can dispute the city’s statistics, those arguments are better addressed as a question of fact at trial rather than at the initial pleadings stage, Chen wrote.

“On balance, the property-tax injury survives the pleading stage because Oakland’s proffered statistical analyses have the potential to provide certainty to the damages calculation,” he wrote.

But as the article notes, Oakland’s case against Wells Fargo was trimmed by the judge, who ruled that the city did not do enough to allow its claims about the upkeep costs of the foreclosed properties and other complaints to move forward.

In a statement provided to Bloomberg, Wells Fargo said that it plans to continue fighting the lawsuit.

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