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Oakland Sues Wells Fargo for Targeting Black and Hispanic Borrowers with Unfair Lending Practices

The city attorney says the bank profited from dubious lending practices while leaving the city to clean up the foreclosure mess with public money.

A scene from Occupy Oakland, 2013.

 

Yesterday afternoon the City of Oakland filed a federal lawsuit against Wells Fargo over what the city characterizes as predatory and discriminatory lending practices. Based in part on testimony from confidential witnesses who worked at Bay Area branches between 2006 and 2014, the suit alleges that the bank targeted African American and Hispanic borrowers for higher-interest and riskier loans than they could otherwise have qualified for. The city is seeking to recoup unspecified damages for the strain that an excess of foreclosures put on city resources, from lowered property-tax revenue to the blight and crime associated with vacant foreclosures.

According to the complaint, filed by city attorney Barbara J. Parker, an analysis of Wells Fargo loans issued in Oakland between 2004 and 2013 found that a predatory loan is more than 1.75 times more likely to end in foreclosure than a standard loan. The suit doesn’t specify a number of Oakland foreclosures it attributes to predatory practices, but Alex Katz, a spokesman for the city attorney’s office, says that overall foreclosures in the city number in the thousands. Katz says the city focused on Wells Fargo because “they’re one of the largest lenders in the city and country.” 

City Attorney Parker accuses Wells Fargo of devastating Oakland residents’ lives and communities while raking in profits. The bank’s conduct led to “increasing poverty and wiping out or drastically reducing wealth for minority communities,” she said in a statement. “Wells Fargo and other banks knew when they issued predatory loans that many of them would result in foreclosure.” And because of housing prices that mount year by year, some of these former homeowners may be permanently priced out of the market, a release from Parker’s office notes: “The rising cost of housing virtually guarantees that these minority homeowners who lost their homes will never be able to re-enter the Oakland housing market as homeowners, or even as renters.”

The suit seeks to recover damages for the city, however, not for affected homeowners.

According to the suit, a confidential witness who worked as a Wells Fargo mortgage consultant in Oakland in 2011 and 2012 says that minority borrowers often complained that they believed they had secured a fixed-rate loan, only to realize later that they had an adjustable-rate loan. The witness describes a culture of omission, where marketing materials at bank branches left out pertinent details, and loan officers had to pay out of pocket if they wished to provide brochures in Spanish.

Tom Goyda, vice president of communications in the bank’s consumer lending division, defends the bank’s record. “The City Attorney's accusations against Wells Fargo do not reflect how we operate in the communities where we do business and it's disappointing that she has chosen this course of action over a collaborative approach to helping borrowers and home owners in Oakland.” 

The suit has the ring of retribution in the wake of the financial crisis, but the practices outlined in the filing do not focus on subprime lending and other hallmarks of the 2008–09 housing market collapse. According to Joel Liberson, an outside attorney involved in the suit, discriminatory practices didn’t stop with the end of the financial crisis. “This is not a case that focuses on subprime leding,” he says. “Rather, it is a case that focuses on an unbroken pattern and practice of issuing a variety of loans with predatory terms since 2004.”

According to Katz, the city attorney has not ruled out pursuing similar cases against other lenders. "We have looked at other banks, and there may be other actions inthe near future."


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