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Wells Fargo (WFC) Sued Over Unfair Discrimination Practices
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Already burdened by mounting legal woes, Wells Fargo (WFC - Free Report) , one of the biggest players in the U.S. mortgage business, faces yet another suit over its discriminatory lending practices. This time, the company has been sued by the city of Sacramento.
The suit, filed last Friday, in the U.S. District Court for the Eastern District of California, accuses Wells Fargo of targeting African-American and Latino communities in Sacramento for issuing loans with more expensive and higher risk compared to loans made to white borrowers. The complaint accused Wells Fargo of practicing discrimination against minority borrowers for more than a decade with the aim of recording higher earnings.
The lawsuit mentioned that the African-American borrowers with strong credit were able to receive high costs loan more than twice as compared with the white borrowers, while Latino borrowers were 1.4 times as likely as white borrowers. It further claimed that most of such loans led to foreclosures as the company denied refinancing the loans on the similar terms it offered to white borrowers.
The city argues that the bank purposely increased foreclosures in minority communities in Sacramento which reduced surrounding property values resulting in economic loss. Further, on the back of the city’s loss of property taxes on abandoned properties and lowered value of foreclosed properties, the city seeks monetary compensation.
“Wells Fargo has systematically engaged in a continuous and unbroken discriminatory pattern and practice of steering minority borrowers in Sacramento into higher cost or more onerous mortgage loans with discriminatory terms when more favorable and less expensive loans were being offered to similarly situated non-minority borrowers,” the lawsuit states.
In the lawsuit, the city of Sacramento investigated Wells Fargo’s lending practices and concluded that the bank was involved in redlining and reverse-redlining. Under such discriminatory practices, it used racial criteria to direct potential borrowers toward certain neighborhoods and determined their eligibility for loans, while reverse is the practice of indulging those communities in risky and high-cost loans. Therefore, the lawsuit alleged Wells Fargo of practicing reverse-redlining in Sacramento since the late 1990s and increasing it in the following years.
“Wells Fargo’s discriminatory lending practices knowingly place vulnerable, underserved borrowers in loans they cannot afford,” the lawsuit states. “The practices maximize Wells Fargo’s profits without regard to the borrower’s best interests, the borrower’s ability to repay, or the financial health of underserved minority neighborhoods.”
It was noted that the U.S. Department of Justice and some of the other cities, such as Los Angeles, Oakland, Miami, Baltimore, Memphis and Miami Gardens, filed similar lawsuits against the banking giant.
Meanwhile, Wells Fargo’s spokesperson was unavailable for comments.
Among other mortgage lenders — Citigroup (C - Free Report) , JPMorgan (JPM - Free Report) and Bank of America (BAC - Free Report) — were also sued for discrimination in lending practices. Deutsche Bank AG had also been previously accused by Los Angeles of letting the foreclosed homes in low-income regions deteriorate to poor conditions. The case was settled in June 2013.
For banks, legal headwinds are on an upswing. These firms continue to face several cases and probes regarding their business conduct preceding the financial crisis. Though the banks resolved many litigation issues over the past years, increasing legal hassles keep dragging the financials downward.
Wells Fargo’s performance over the past year reflects investors’ disappointment. Shares of this Wall Street biggie have gained 3.6%, significantly underperforming the industry’s rally of 19.2%.
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2018?
Last year's 2017 Zacks Top 10 Stocks portfolio produced double-digit winners, including FMC Corp. and VMware which racked up stellar gains of +67.9% and +61%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
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Wells Fargo (WFC) Sued Over Unfair Discrimination Practices
Already burdened by mounting legal woes, Wells Fargo (WFC - Free Report) , one of the biggest players in the U.S. mortgage business, faces yet another suit over its discriminatory lending practices. This time, the company has been sued by the city of Sacramento.
The suit, filed last Friday, in the U.S. District Court for the Eastern District of California, accuses Wells Fargo of targeting African-American and Latino communities in Sacramento for issuing loans with more expensive and higher risk compared to loans made to white borrowers. The complaint accused Wells Fargo of practicing discrimination against minority borrowers for more than a decade with the aim of recording higher earnings.
The lawsuit mentioned that the African-American borrowers with strong credit were able to receive high costs loan more than twice as compared with the white borrowers, while Latino borrowers were 1.4 times as likely as white borrowers. It further claimed that most of such loans led to foreclosures as the company denied refinancing the loans on the similar terms it offered to white borrowers.
The city argues that the bank purposely increased foreclosures in minority communities in Sacramento which reduced surrounding property values resulting in economic loss. Further, on the back of the city’s loss of property taxes on abandoned properties and lowered value of foreclosed properties, the city seeks monetary compensation.
“Wells Fargo has systematically engaged in a continuous and unbroken discriminatory pattern and practice of steering minority borrowers in Sacramento into higher cost or more onerous mortgage loans with discriminatory terms when more favorable and less expensive loans were being offered to similarly situated non-minority borrowers,” the lawsuit states.
In the lawsuit, the city of Sacramento investigated Wells Fargo’s lending practices and concluded that the bank was involved in redlining and reverse-redlining. Under such discriminatory practices, it used racial criteria to direct potential borrowers toward certain neighborhoods and determined their eligibility for loans, while reverse is the practice of indulging those communities in risky and high-cost loans. Therefore, the lawsuit alleged Wells Fargo of practicing reverse-redlining in Sacramento since the late 1990s and increasing it in the following years.
“Wells Fargo’s discriminatory lending practices knowingly place vulnerable, underserved borrowers in loans they cannot afford,” the lawsuit states. “The practices maximize Wells Fargo’s profits without regard to the borrower’s best interests, the borrower’s ability to repay, or the financial health of underserved minority neighborhoods.”
It was noted that the U.S. Department of Justice and some of the other cities, such as Los Angeles, Oakland, Miami, Baltimore, Memphis and Miami Gardens, filed similar lawsuits against the banking giant.
Meanwhile, Wells Fargo’s spokesperson was unavailable for comments.
Among other mortgage lenders — Citigroup (C - Free Report) , JPMorgan (JPM - Free Report) and Bank of America (BAC - Free Report) — were also sued for discrimination in lending practices. Deutsche Bank AG had also been previously accused by Los Angeles of letting the foreclosed homes in low-income regions deteriorate to poor conditions. The case was settled in June 2013.
For banks, legal headwinds are on an upswing. These firms continue to face several cases and probes regarding their business conduct preceding the financial crisis. Though the banks resolved many litigation issues over the past years, increasing legal hassles keep dragging the financials downward.
Wells Fargo’s performance over the past year reflects investors’ disappointment. Shares of this Wall Street biggie have gained 3.6%, significantly underperforming the industry’s rally of 19.2%.
Currently, Wells Fargo carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Zacks Top 10 Stocks for 2018
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2018?
Last year's 2017 Zacks Top 10 Stocks portfolio produced double-digit winners, including FMC Corp. and VMware which racked up stellar gains of +67.9% and +61%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
Access Zacks Top 10 Stocks for 2018 today >>