Federal Court Says Oakland Cannot Prosecute Wells Fargo Over Discriminatory Lending Practices


A federal appeals court on Tuesday dismissed Oakland’s long-standing lawsuit against Wells Fargo Bank over its practices of lending to minority homebuyers, saying the city had no direct evidence it had suffered financial losses due to foreclosures allegedly caused by discriminatory loans.

A federal judge and a panel of the United States Court of Appeals for the Ninth Circuit had previously ruled that Oakland could seek millions of dollars in damages from Wells Fargo if it could prove that the San-based bank Francisco was targeting black and Latino borrowers with mortgage rates, leading to higher foreclosure rates and lower property tax revenues for the city.

But after the Ninth Circuit granted the bank’s request for a new hearing, a larger panel ruled Tuesday that even though the bank’s lending practices were discriminatory, Oakland could not show it had suffered a financial loss of these practices.

The city has no direct evidence, as required by a 2017 US Supreme Court ruling, that “discriminatory loans automatically lead to increased foreclosures and a decrease in property value,” said Judge Margaret McKeown. in the 11-0 decision.

She noted that individual borrowers can sue the bank for its lending practices. President Barack Obama’s administration won a $ 175 million settlement from Wells Fargo in 2012 in a lawsuit on behalf of the borrowers and a Settlement of $ 1.2 billion in 2016 in a separate lawsuit in which the bank admitted cheating on the government into insuring subprime mortgages.

In its complaint, filed in 2015, Oakland said Wells Fargo was more than twice as likely to overwhelm black and Latino homebuyers as other borrowers with adjustable rate loans with “predatory” terms rather than loans. fixed rate loans. Lending to minority borrowers comes at higher costs and the bank is less willing to refinance them to avoid default, the city said; he said 14.1% of loans in minority areas ended in default, compared to 3.3% in non-minority areas.

Wells Fargo has denied any discrimination. But the court said on Tuesday that there was no need to decide that issue because Oakland cannot link its financial losses to the bank’s lending practices, a link defined by the High Court ruling in 2017 in a similar action by the City of Miami against Wells Fargo. and the Bank of America.

A borrower can default on a loan for many reasons unrelated to the lender’s practices, McKeown said: “Job loss, medical hardship, family death, divorce, fire or other disaster, COVID-19, trends wider economic factors, or any number of other unforeseeable causes not present at the time of the granting of the loan.

Likewise, she said, the value of property and the resulting tax revenue may decline due to owner negligence, outside criminal activity or economic conditions. And the foreclosure decision itself can be made by another lender who bought the loan from the bank.

These “downstream” factors “are too mitigated and go too far beyond Wells Fargo’s alleged misconduct” to allow the city to show that it has been financially harmed by the bank’s practices, McKeown said. .

San Francisco, the state of California, and housing rights groups have made arguments for Oakland, while business organizations have sided with Wells Fargo. In the San Francisco brief, filed in 2019, City Attorney Dennis Herrera’s Office argued that local governments can spot discriminatory housing practices that individual borrowers might not be aware of, and that the ban such lawsuits “will make it difficult, if not impossible, for municipalities to continue to promote fair housing and end discrimination.

Wells Fargo said it was satisfied with the decision and the court’s dismissal of the lawsuit.

“We will continue to focus on expanding homeownership opportunities in the City of Oakland and across the country,” the bank said in a statement.

There was no immediate comment from city lawyers.

Bob Egelko is a writer for the San Francisco Chronicle. Email: [email protected] Twitter: @BobEgelko


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