Wells Fargo Pays $175 Million to Settle Discrimination Claims

A homeowner talks to a Wells Fargo representative during a “Save the Dream” event in Los Angeles to help homeowners restructure their mortgages to avoid foreclosure, September 2010. (Kevork Djansezian/Getty Images)

NEW YORK—Banking giant Wells Fargo & Co. on Thursday reached a $175 million settlement with the Department of Justice (DOJ) to resolve allegations that the company violated fair-lending laws.

The San Francisco-based Wells Fargo allegedly discriminated against blacks and Hispanic borrowers from 2004 to 2009, the U.S. government said. The number of affected borrowers is estimated to be around 34,000 in total, located in 36 states and the District of Columbia. Wells Fargo, after its acquisition of Wachovia Corp. in 2008, became the nation’s biggest residential home mortgage originator.

“An applicant’s creditworthiness, and not the color of his or her skin, should determine what borrowers pay and what loans they qualify for,” said Deputy Attorney General James Cole in a statement. 

“Put simply, there is no place for discriminatory lending in the marketplace, and it will not be tolerated,” he said.

According to court documents obtained by Reuters, government investigators found loan documents with varied interest rates that were not derived from creditworthiness.

One example given by the federal regulators found that an African-American borrower in the Chicago area seeking a $300,000 mortgage would typically pay $2,937 more in fees than a similar white applicant. 

The $175 million settlement consists of $125 million in compensation to affected minority borrowers who were found to pay higher fees, and another $50 million in funds to help borrowers in affected areas make down payments on mortgages as well as home improvements. That money will go to homeowners located in municipalities the U.S. government defined as needing the most help, including Baltimore, Chicago, New York, Los Angeles, Washington, D.C., and Philadelphia.

Wells Fargo disclosed in a regulatory filing earlier in the year that it was under investigation for discriminatory lending practices, but maintained that it thought the issues would be resolved without penalty. In a statement, Wells Fargo said that the settlement was made “for the purpose of avoiding contested litigation with the DOJ.” 

Last December, Countrywide Financial, a subsidiary of Bank of America Corp., settled with federal regulators over similar charges.

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