Wells Fargo agreed Thursday to pay more than $175 million to resolve allegations that it engaged in a widespread pattern of discrimination that pushed qualified black and Hispanic borrowers into more expensive home loans.
The settlement could impact more than 1,000 of the bank's customers in metro Atlanta.
The settlement with the U.S. Justice Department provides $125 million to borrowers who were steered into subprime mortgages or who paid higher rates than white borrowers because of their skin color or ethnicity and not because of their creditworthiness. Wells Fargo will also spend $50 million to help pay down payments to victims in the hardest hit areas.
It's the second-largest settlement of its kind in the Justice Department's history, and the total could grow as Wells Fargo conducts a review of its retail mortgage lending practices. Bank of America agreed to pay $335 million in December to resolve similar allegations against its Countrywide unit.
"Wells Fargo preyed on African American and Hispanic borrowers and as a result, those borrowers have suffered significant financial harm," said U.S. Attorney Sally Quillian Yates, who represents the north Georgia district. "Today, the Department of Justice is endeavoring to right that wrong, and to put lenders on notice that they will be held accountable for discriminatory practices."
According to the federal complaint, Wells Fargo steered about 4,000 minority borrowers across the nation into subprime mortgages between 2004 and 2008, leading them to pay higher rates than white borrowers with similar credit profiles who received prime loans.
The complaint also contended that Wells Fargo charged about 30,000 black and Hispanic borrowers higher fees and rates than white borrowers because of their race or national origin rather than any objective reasoning.
It said Wells Fargo was aware the fees and interest rates it was charging discriminated against minority borrowers but that it failed to stop the predatory lending practices.
Wells Fargo is admitting no wrongdoing as part of the settlement. Mike Heid, president of Wells Fargo Home Mortgage, said the decision was made to avoid a costly legal fight and instead "devote our resources to continuing to contribute to the country's housing recovery."
The settlement was filed in the U.S. District Court in Washington and must still be approved by a federal judge.
It calls for an independent administrator to distribute compensation payments and contact victims. Prosecutors urge those who believe they may be eligible for compensation from Wells Fargo to email the department at email@example.com.
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