Wells Fargo will pay over $175 million to resolve allegations that it discriminated against black and Latino borrowers, including residents in Los Angeles County, the Justice Department announced Thursday.
The settlement, the second largest in the Justice Department’s history, provides more than $125 million in compensation to discriminated borrowers who paid higher fees and rates than white borrowers solely because of their race. About $10 million is allocated to the approximately 4,500 victims in Los Angeles County.
Additionally, Wells Fargo will establish a borrower assistance program that provides $50 million in payments to residents of eight metropolitan areas that the bank treated unfairly.
“The department’s action makes clear that we will hold financial institutions accountable, including some of the nation’s largest, for lending discrimination,” said Deputy Attorney General James M. Cole in a statement. “An applicant’s creditworthiness, and not the color of his or her skin, should determine what loans a borrower qualifies for.”
Wells Fargo denies the allegations, based on mortgage lending from 2004 to 2009 and claims it is settling the lawsuit merely “for the purpose of avoiding contested litigation with the DOJ,” according to a company statement.
The bank will conduct an internal review of its retail mortgage lending.
The Justice Department also claims Wells Fargo steered about 30,000 qualified black and Latino borrowers into subprime mortgages, while giving whites with similar credit worthiness prime loans. Subprime loans generally carry higher interest rates and are designated for people more likely to default.
The discriminatory loans in question were mostly sold through independent mortgage brokers, which currently represent about five percent of the bank’s home mortgage division, according to the company. Wells Fargo announced that on Friday, it will no longer accept loan applications from independent brokers.
“Wells Fargo is settling this matter because we believe it is in the best interest of our team members, customers, communities and investors to avoid a long and costly legal fight, and to instead devote our resources to continuing to contribute to the country’s housing recovery,” said Mike Heid, president of Wells Fargo Home Mortgage, in a statement.
The settlement, filed on Thursday, is subject to court approval.