Lender bender: Sacramento sues Wells Fargo on behalf of ‘targeted’ communities

After allegedly applying discriminatory lending practices toward communities of color, Wells Fargo was hit with a federal lawsuit by the city of Sacramento.

The action, which was filed on February 23 in U.S. District Court for the Eastern District of California, accuses the bank of targeting communities of color—namely African-American and Latino communities—with high-risk and high-cost mortgages.

According to the city, these discriminatory patterns date back to at least 2004, when plaintiffs claim African-Americans with good credit were twice as likely to be steered toward risky loans in comparison to white borrowers. A loan in minority neighborhoods is nearly three times more likely to wind up in foreclosure than in white communities. The city alleges the illegal practices forced it to divert resources meant to serve other programs—by reducing property tax revenues, suppressing property values in minority and low income communities, and raising the cost of municipal services.

The city is seeking an unspecified amount in monetary damages.

San Francisco-based Wells Fargo was already in hot water last year when it admitted employees had opened more than 2 million fraudulent accounts in customers’ names, a number that has now reached approximately 3.5 million.

“They came up with terrible incentives,” Wells Fargo investor Warren Buffett said in an interview with CNBC on February 26. “That system incentivized bad behavior and that bad behavior became contagious.”

The Federal Reserve has since slapped Wells Fargo with sanctions restricting further growth until the bank’s risk management and governance has seen improvements.

“We cannot tolerate pervasive and persistent misconduct at any bank,” said former Federal Reserve Chairwoman Janet Yellen. “The customers harmed by Wells Fargo expect that robust and comprehensive reforms will be put in place to make certain that abuses do not occur again.”

Sacramento joins Philadelphia, Oakland, Miami and other cities in suing Wells Fargo over discriminatory lending practices.