The City of Philadelphia announced (HousingWire) on May 15, 2017 that it will sue one of the nation’s largest banks, Wells Fargo, for discriminatory lending practices against its minority residents which, in turn, caused harm to the City. This suit will be a major test of a recent ruling by the U.S. Supreme Court (Bank of America, et. al. v. City of Miami), which held that a municipality could sue lenders under the Fair Housing Act, if its complaint met the following conditions:
- The city must be an “aggrieved person” within the meaning of the Fair Housing Act;
- The alleged harm must be within the range of injuries against which the Fair Housing Act protects; and
- The discriminatory lending practices must be the proximate (i.e., direct) cause of the injury to the city.
The third condition is likely to be the most challenging of the three for Philadelphia and other municipalities. On this point, Philadelphia is “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.”
In addition, Philadelphia seeks “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 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.
In support of its claims, Philadelphia asserts that, since 2004, Wells Fargo violated the Fair Housing Act by steering African American and Latino borrowers more frequently to higher-priced products than what their credit characteristics warranted. The City determined that this was driven by the bank’s granting of lender credits to offset a reduction in borrowers’ closing costs by an increase in the corresponding interest rates.
Philadelphia supports these allegations with data that show (CNBC, May 15, 2017):
“…23.3 percent of the bank’s loans to minorities were high-risk, compared to just 7.6 percent for whites. The city is charging that blacks with FICO credit scores above 660 were 2.5 times more likely to receive high-cost loans than whites. For Latinos, the figure was 2.1 times.”
Wells Fargo responded to the complaint, stating the accusations were unsubstantiated:
“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…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.”