Jonathan Bilyk Jul. 20, 2015, 6:48pm

A federal judge has refused to rule Wells Fargo did not engage in lending practices blamed for allegedly exacerbating a plague of home mortgage foreclosures among minority homebuyers. But the judge still has tossed a lawsuit brought against the lender by Cook County over the bank’s alleged predatory lending practices.

On July 17, U.S. District Judge Gary Feinerman ruled Cook County is not the correct legal entity to bring the lawsuit against the lender, despite the negative effects, including blight and depressed housing values, the allegedly discriminatory lending practices may bring to Cook County’s communities and neighborhoods.

“In so ruling, the court does not hold or even suggest that Wells Fargo did not violate the (Fair Housing Act), that Wells Fargo did not engage in reverse redlining, or that the direct victims of Wells Fargo’s alleged misconduct do not deserve compensation,” Feinerman wrote. “Rather, the court’s ruling rests solely on its conclusion that, on the complaint’s allegations, Cook County is not within the FHA’s zone of interests.

“Because Cook County has brought only an FHA claim, the complaint is dismissed.”

Cook County had filed the lawsuit against the lender in 2014. It is virtually identical to those the county filed last year against other mortgage lenders, including Bank of America and HSBC.

The cases center on similar allegations of predatory lending practices against the purveyors of home loans, including such tactics as so-called reverse redlining.

Under the discriminatory practice known as redlining, lenders would typically deny most racial and ethnic minority borrowers the opportunity to obtain loans to buy homes in certain areas.

However, under reverse redlining, the lenders agree to give loans to minority borrowers, such as African-Americans or Hispanic-Americans, but do so under rates and terms more onerous than those given to white borrowers with similar financial standing.

Cook County contended in its lawsuits such lending practices helped fuel a wave of foreclosures as the loans “strip equity” from those minority borrowers, who then fail to make the more expensive monthly payments and slip into default. That, in turn, leaves vacant homes scattered throughout neighborhoods, depressing home values and costing local governments, including the county, potentially billions of dollars in lost property tax revenues and costs to deal with the problems resulting from an abundance of vacant properties.

In this case, the judge noted, Wells Fargo issued more than 61,000 mortgage loans in Cook County from 2004-2007 alone, including 10,000 “high cost” loans. And while 41 percent of total home loans went to minority borrowers, 65 percent of the high cost loans went to minorities.

Nationwide, the judge said, data indicated “African-American borrowers were nearly three times more likely than similarly situated white borrowers to receive a subprime rather than a prime loan from Wells Fargo” from 2004-2008.

In 2009, Wells Fargo agreed to an order sought by the U.S. Department of Justice and Ill. Attorney General Lisa Madigan to pay $8 million and to “provide cash rebates” to “African-American and Hispanic borrowers who received nonprime Wells Fargo loans” yet may have actually been qualified to receive the better loan terms.

Cook County then sued to recover damages it believes it is now owed resulting from the injuries it suffered dealing with the fallout from those lending practices.

Feinerman said the allegations brought by the county would have been sufficient to sustain an injury claim.

And, while dismissing the county’s action, the judge conceded other judges have ruled differently, rejecting the “zone of interests” arguments raised by lenders.

In March, for instance, U.S. District Judge Elaine E. Bucklo rejected Bank of America’s request to dismiss the county’s lawsuit against it.

In the Wells Fargo case, however, Feinerman said the case law backs his belief the county does not stand as one of the plaintiffs granted by the FHA to bring a complaint for discriminatory lending practices.

“If Wells Fargo engaged in reverse redlining, the affected minority borrowers would obviously fall within the FHA’s zone of interests,” Feinerman wrote. “But Cook County’s alleged injuries … are purely derivative and not the type that the FHA was designed to protect.

“The county’s claims thus fall outside the zone of interests.”

Feinerman granted Cook County until Aug. 14 to amend their complaint, or the case would be dismissed with prejudice.

Attorneys from the firm of Katten Muchin Rosenman LLP, of Chicago, Winston & Strawn LLP, of Chicago and Washington, D.C., and K&L Gates LLP, of Chicago and Miami, Fla., represented Wells Fargo in the action. Cook County was represented by attorneys of the firms of James D. Montgomery & Associates, of Chicago, and Harris Penn Lowry LLP, of Atlanta, Ga.

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Wells Fargo
402 Montgomery Street
San Francisco, CA 94104

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