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News from:
City Attorney Barbara J. Parker

September 22, 2015

City of Oakland files federal lawsuit against Wells Fargo for damages caused by predatory lending

City and its residents suffered major financial damages due to bank’s discriminatory practices in Oakland

OAKLAND, CA – Today City Attorney Barbara J. Parker filed a federal lawsuit against Wells Fargo to recover damages caused by the bank’s widespread predatory and discriminatory lending practices.

The lawsuit charges Wells Fargo with targeting African American and Hispanic borrowers, including minority churches and congregations, for predatory mortgage loans in violation of the federal Fair Housing Act and California’s Fair Employment and Housing Act. Evidence shows that Wells Fargo issued more expensive and higher risk loans to minority borrowers despite the fact that they qualified for more favorable loans that the bank regularly issued to white borrowers.

“Wells Fargo’s discriminatory conduct devastated individuals and communities, increasing poverty and wiping out or drastically reducing wealth for minority communities while bankers prospered,” City Attorney Parker said. “Wells Fargo and other banks knew when they issued predatory loans that many of them would result in foreclosure. None of the responsible bankers have been held personally accountable in any meaningful manner, and the leaders of these institutions earned millions of dollars generated in part by issuing toxic loans to minorities. We will not tolerate this activity and we are working with other municipalities to stop this unconscionable behavior.”

The lawsuit asks the Court to order Wells Fargo to cease its discriminatory practices and compensate the City of Oakland for the great financial harm the foreclosure crisis caused the City and its residents. In addition to losing millions in tax revenues, which necessitated police layoffs and other cuts in vital City services such as park and library services and street and sidewalk maintenance, the bank’s predatory actions saddled the City and its taxpayers with the massive costs of addressing blight, vandalism and crime associated with foreclosed properties.

Thousands of homes went into foreclosure and remain in poor condition costing cities significant sums of money due to the loss of property taxes and increased out-of-pocket expenditures to remedy the resulting blight throughout minority communities. Wells Fargo’s conduct also frustrates the efforts of municipalities to provide the benefits of an integrated community when minority homes result in foreclosure.  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.

Oakland has suffered substantial damages resulting from banks’ unlawful conduct, which reduced available resources to deliver municipal services to all residents of our community.  These damages include a reduction in property taxes the City collected due to the decrease in value of the foreclosed properties themselves and those located nearby, as well as the increased costs of City services that were required to address a multitude of problems at the foreclosed residences. 

Additionally, the City had to divert resources that otherwise could have been deployed in a more productive manner.  While these banks were generating substantial revenue from the issuance of predatory and discriminatory mortgages, Oakland was losing significant revenue and incurring costs that have not been reimbursed.

According to former Federal Reserve Chairman Bernanke, the housing crisis reversed most or all of the hard-fought gains in home ownership and equity that low income and minority communities made during the past 15 years.  Other scholars have stated that the housing crisis is “nothing short of the preeminent civil rights issue of our time.” 

As Wells Fargo acknowledges in its most recent Annual Report, the bank possesses sophisticated risk management and monitoring tools regarding its lending practices.  Consequently, the bank knew at the time it issued loans with predatory terms that they were far more likely to result in foreclosure than conventional loans.  Nevertheless, the bank continued to issue these loans because they were highly profitable.

In June, the United States Supreme Court ruled that a municipality has the legal right to pursue a claim to recover damages, holding that the Fair Housing Act permits recovery for claims under a theory of disparate impact housing discrimination. This means that the courts are bound to examine the impact of banks’ lending practices; plaintiffs do not have to rely solely on so-called “smoking guns,” such as statements that decisions were made based upon race, to demonstrate that a bank violated the law.  Additionally, earlier this month the United States Court of Appeals for the Eleventh Circuit issued a unanimous decision concluding that municipalities possess legal standing under the Fair Housing Act to pursue claims for damages incurred by predatory mortgage lending practices.

City Attorney Parker filed the lawsuit in federal court with outside counsel including Erwin Chemerinsky, Dean of the University of California at Irvine School of Law, Robert Peck, President of the Center for Constitutional Litigation, Yosef Peretz of Peretz & Associates, and Joel Liberson of Trial & Appellate Resources.

The U.S. Department of Justice and the cities of Los Angeles, Miami and Miami Gardens previously filed similar lawsuits against the same banks. The City of Oakland joins the growing list of municipalities that are committed to holding mortgage lenders accountable for the devastating consequences of their continuing pattern and practice of issuing predatory and discriminatory loans to minority residents.

“Wells Fargo was founded in the Bay Area and the company has profited mightily at the expense of Oakland’s minority residents,” City Attorney Parker said. “Oakland understands the importance of having a viable banking presence within the City and supports responsible financial institutions, but we will not tolerate abusive and unlawful treatment – nor can we accept the resulting damage to the City’s finances and to the health and welfare of our residents.”

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