A lawsuit has been filed against Wells Fargo & Company (WFC) by Illinois-based Cook County, as per a Reuters report. The lawsuit accused the bank of discriminatory lending practices towards black, Hispanic and female borrowers in the Chicago area. The complaint accused Wells Fargo of practicing discrimination against minority and female borrowers for more than a decade with the aim of recording higher earnings.
According to the suit, Wells Fargo was engaged in a practice called "equity stripping". Such a practice involves overcharged fees and interest rates along with penalties to refinance. Further, it increases profits of the lender based on the value of the underlying asset and loan terms, irrespective of a borrower’s ability to repay.
Hence, this led to a rise in foreclosures in Cook County during the financial downturn. Notably, the process has involved around 26,000 loans. The suit demands damages totaling around $300 million.
On the contrary, according to Wells Fargo’s spokesperson, such allegations are “baseless” and the bank aims to defend itself. Further, he commented, “It’s disappointing they chose to pursue a lawsuit against Wells Fargo rather than collaborate together to help borrowers and home owners in the county.”
It has been notified that Wells Fargo was involved in predatory lending practices in Chicago, followed by similar cases in Los Angeles and Miami. Notably, the mortgage crisis in Los Angeles led homeowners to lose around $78.8 million in home values following over 200,000 foreclosures from 2008–2012. Further, the city lost property tax revenue of around $481 million.
Among other mortgage lenders – Citigroup Inc. (C), JPMorgan Chase & Co. (JPM) and Bank of America Corp. (BAC) also were 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 Jun 2013.
For banks, legal headwinds are on the upswing. The banks continue to face several cases and probes regarding their business conduct preceding the financial crisis. Though the banks resolved many litigation issues in the past years, increasing legal hassles keep dragging the financials downward.
Currently, Wells Fargo holds a Zacks Rank #3 (Hold).
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