Oakland can sue Wells Fargo over home-loan practices, court rules

Oakland can sue Wells Fargo for the many millions of dollars the city has allegedly lost in property taxes because of the bank’s home-lending practices that that led to widespread foreclosures by minority borrowers, a federal appeals court ruled Wednesday.


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Upholding a federal judge’s ruling, the Ninth U.S. Circuit Court of Appeals in San Francisco said Oakland had offered evidence that, if proven, could show that it was suffering financial losses due to what the city called Wells Fargo’s “predatory loans” to Black and Latino households.

Those loans come with higher costs and more demanding terms than other loans, and the bank is less willing to refinance them to avoid default. Oakland said Wells Fargo was 2.4 times as likely to make loans to Black borrowers on those terms and 2.5 times as likely to Latinos, as it was to white, non-Latino households.

In minority neighborhoods, the city said, 14.1% of Wells Fargo home loans ended in foreclosure, compared to 3.3% of loans in non-minority neighborhoods.

Wells Fargo denied discrimination and also argued that only individual homeowners, not municipal governments, could sue over lending practices. But the appeals court said the 1968 Fair Housing Act allowed anyone harmed by housing discrimination to recover financial losses.

“Congress was keenly focused on the impact that discriminatory housing practices, including discriminatory lending, were having on cities and their tax base,” said Judge Mary Murguia in the 3-0 ruling. She said the suit “plausibly alleged predatory loans to Black and Latino borrowers necessarily resulted in widespread foreclosures, which in turn necessarily reduced property values, and thus, necessarily reduced Oakland’s property-tax revenues.”

Murguia said the suit does not prevent individual borrowers from pursuing their own claims, although those must be filed within two years of the date a loan is issued, which she said is often too early to determine its harmful effects. She also noted a $175 million settlement President Barack Obama’s administration reached with Wells Fargo in a Washington federal court in 2012 on behalf of individual borrowers.

While the court allowed Oakland to seek damages for property tax losses that it could connect to discriminatory lending practices, the ruling rejected the city’s attempt to seek further recovery for added municipal expenses allegedly caused by those practices. Murguia said a court would not be able to determine which city expenses could be traced to Wells Fargo’s loans.

Wells Fargo spokesman Ruben Pulido said the bank “continues to strongly dispute the city’s claims and will defend our record as a responsible lender.” He said Wells Fargo “has been a part of the Oakland community for more than 140 years and will continue our longstanding efforts to work with customers, credit counselors, nonprofit organizations and government agencies to expand home ownership and revitalize distressed neighborhoods in the Bay Area.”

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

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