It’s only been a few years ago that accusations were made by women who worked for one of the nation’s biggest banks, Well Fargo. They filed a lawsuit and won after proving discrimination in the workplace. One would think Wells Fargo would take a long hard look at its policies. It didn’t. Not long after that case, it faced another lawsuit. This time, the Illinois attorney general accused Wells Fargo & Co. of discriminating against minority borrowers by placing them into subprime mortgages. At that time (2009), Wells Fargo was the country’s largest home lender. Mattered little to Attorney General Lisa Madigan, who write in the filing attached to the suit,
The dreams of many hardworking families have ended in foreclosure due to Wells Fargo’s illegal and unfair conduct.
It was filed in Cook County, Illinois Circuit Court.
Now, the bank’s been ordered to give back $60 million to close to 40,000 minority borrowers who turned to the bank for help in acquiring the American dream. Turns out, these minorities were offered subprime loan products when they qualified for better – and by better, we mean lower interest – mortgage rates. It should be noted, too, this latest settlement is aside from two previous orders of $125 million and $50 million payments from its assistance fund that Wells Fargo conceded to pay as part of a settlement this past September.
The law requires the Department of Justice review cases like these and the agency must concur with the court’s ruling as part of the final approval process. As part of its compliance guidelines, the Justice Department offered its own findings. Wells Fargo overcharged, both in higher fees and interest rates, more than 39,000 minority borrowers. This occurred in 36 states as well as the District of Columbia. White borrowers who had credit histories and scores were consistently offered better products and lower interest rates. Minorities were offered expensive and risky subprime loans which, as we now know, were destined to fail. Bottom line is it didn’t have to be this way. Further compounding the problem is many were unaware they even qualified for prime rates.
The wheels are turning as it was announced the bank had already set up an escrow account and it’s expected to pay each of the plaintiffs, on average, $14,850. It maintains in innocence, however and says it doesn’t wish to litigate the suit, even though it’s being accused of discriminating against minorities while offering white customers better loan terms.
The bank must also perform a statistical analysis of subprime mortgages that originated the years 2004 and 2008. It must do so via its retail avenues and it must focus on both black and Hispanic borrowers who might have been eligible for the prime loan category, but were not offered those products.
Finally, the bank had already agreed to cease using outside brokers to create mortgages. Earlier this year, in the other ruling, the Justice Department wrote,
Wells Fargo’s internal documents reveal that senior officials were aware of the numerous tactics that subprime originators employed to keep loans in the subprime division,
Wells Fargo asserts that throughout the period of time at issue in this proceeding and to the present, it has treated all customers fairly and without regard to impermissible factors such as race and national origin,
the bank said in the consent order before it gained approval.
The buck doesn’t stop with Wells Fargo, however. There have been several banks busted for those same policies. You may recall SunTrust Banks Inc. was also ordered to pony up close to $21 million to settle such charges earlier in 2012. This Wells Fargo settlement marks the second largest fair-lending conclusion reached by the Justice Department. Already, the government agency ordered a record $335 million be paid by Bank of America Corp. Before Countrywide was acquired by BoA in 2008, and during its big scandal involving its former CEO, Countrywide assessed higher fees and interest rates on more than 200,000 black and Hispanic borrowers, the Justice Department said at the time. Bank of America had fought those allegations stating it couldn’t be responsible for what Countrywide did before it was acquired.
In some cases, the “systemic discrimination” by Wells Fargo resulted in it offering only riskier adjustable – rate mortgages (ARMs) with misleading teaser rates when the consumers qualified for more standard loans, such as those with 30-year fixed rates, the U.S. said in its complaint. Bonuses were paid to those employees and off – site brokers and loan originators via yield spreads.
The bank also agreed to commit $50 million in direct payments for down-payment assistance in eight U.S. regions where the U.S. alleges the discrimination practices had a significant impact.
So what are your thoughts? Was this a fair settlement or should the Justice Department have reined in all of the banks at the same time?