Financial services giant Wells Fargo has agreed to pay $175 million to settle claims it engaged in widespread price discrimination involving subprime mortgages and higher fees charged to black and Latino borrowers.
The Baltimore Sunreports that the San Francisco-based bank will pay $125 million in compensation to borrowers who were sold subprime mortgages or who paid higher fees because of their race or national origin. Another $50 million will be used for direct down payment assistance to borrowers in areas where the US Justice Department has identified widespread discrimination.
The city of Baltimore, Maryland had filed a lawsuit against Wells Fargo in January 2008. Under the terms of the settlement announced on Thursday, the city will dismiss the suit.
"Today's settlement with Wells Fargo is the second largest fair lending settlement in the department's history," Assistant Attorney General Thomas E. Perez announced.
The federal government accused Wells Fargo of discriminating against black and Latino borrowers, who it claimed were more likely than whites to be sold subprime mortgages even if they qualified for better loans. According to the lawsuit, around 30,000 black and Latino borrowers faced such discrimination between 2004 and 2009.
"At the core of the complaint is a simple story," Perez added. "It is about the 80-year-old African-American resident of the Baltimore area with a 714 credit score and a rock-solid credit file who received a subprime loan instead of a prime loan, and who was not told that she may have qualified for a prime loan with better terms. By the time she realized she had an adjustable rate mortgage, and not the fixed rate she thought, it was too late. The damage was done."
"The [Justice] Department's action makes clear that we will hold financial institutions accountable, including some of the nation's largest, for lending discrimination," Deputy Attorney General James M. Cole added in a statement. "An applicant's creditworthiness, and not the color of his or her skin, should determine what loans a borrower qualifies for."
Wells Fargo continues to reject charges that it engaged in racist lending practices.
"We don't agree with the claims in the complaint," company spokesman Oscar Suris told the Baltimore Sun. "The value in settling to us is to get this behind us."
"Wells Fargo is settling this matter because we believe it is in the best interest of our team members, customers, communities and investors to avoid a long and costly legal fight, and to instead devote our resources to continuing to contribute to the country's housing recovery," Mike Heid, president of the company's home mortgage division, said in a statement.
Wells Fargo, which made nearly $16 billion in profit last year, says it stopped all subprime mortgage lending in 2008.