Wells Fargo has agreed to pay at least a $175 million settlement over allegations that its independent brokers charged black and Hispanic mortgage borrowers thousands of dollars more.
The discrimination took place during the housing boom, the New York Times reported, and involved charging higher fees to more than 30,000 minority borrowers nationwide even though they had the same credit risk as white borrowers. If approved by a federal judge the settlement would be the second-largest fair-lending settlement in the history of the Justice Department.
Wells Fargo, which was already hit for a $435 million settlement for discriminatory practices earlier this year, did more than just charge minorities higher fees. The company’s brokers also steered 4,000 minority borrowers into risky subprime loans even while their white counterparts were offered regular loans.
The deals took place during what was known as the “subprime bubble years” from 2004 to 2009, when borrowers with little or no credit were given loans with high interest rates and less favorable terms. The mass failure of these risky loans was a major contributor to the real estate collapse and subsequent recession of the late 2000s.
Thomas Perez, the assistant attorney general for the Justice Department’s civil rights division, told the New York Times that the practices amounted to a “racial surtax.”
“All too frequently, Wells Fargo’s African-American and Latino borrowers had no idea they could have gotten a better deal — no idea that white borrowers with similar credit would pay less,” he said.
As part of the settlement Wells Fargo didn’t have to admit to any wrongdoing. The settlement does include cash payments to customers, with an average of $15,000 to 200 to 300 borrowers wrongly steered into subprime loans, the Chicago Tribune reported. Close to 3,000 minority borrowers who were charged higher fees will see an average of $1,500 to $2,000 each from the settlement.
Wells Fargo also will spend millions of dollars to offer down payment assistance to homebuyers through a program that is still under development.
“When you look at what’s taken place, it’s horrendous,” Illinois Attorney General Lisa Madigan said of Wells Fargo’s wrongdoing. “It’s not an understatement at all to say that there’s an entire generation of wealth in minority communities that’s been taken away.”