US bank pays out $175m to settle claim of race bias

Wells Fargo accused of making black and Hispanic customers pay higher product fees

One of America's largest banks has agreed to pay $175m to settle claims that it engaged in racial discrimination during the pre-crash housing boom by charging black and Hispanic customers higher fees than whites for their mortgages, sometimes steering them into costly sub-prime loans.

While agreeing to pay the fines, Wells Fargo, which has made significant contributions to the presidential election campaign of Mitt Romney, made clear it was doing so to end the litigation and was not admitting to any guilt in the case. The announcement nonetheless puts an unwelcome spotlight on practices which, according to the US government, amounted to the levying of a "racial surtax".

The US Justice Department said more than 34,000 black and Hispanic borrowers in 36 states paid more for their home loans purely because of the colour of their skins and not for reasons of creditworthiness. Of the sum to be paid by the bank, $125m will go towards compensating those borrowers. The balance of $50m will be used to help borrowers in the regions where most victims lived – including Washington, New York, Philadelphia, Baltimore and California – with their mortgage deposits.

The agreement also brings to a close litigation brought against the San Francisco-based Wells Fargo by Lisa Madigan, Attorney-General of Illinois. The state also accused the bank of deliberately peddling high-cost subprime mortgages in minority areas.

"Wells Fargo's illegal discriminatory lending practices helped destroy a generation of wealth in African-American and Latino communities in Chicago and across the nation," Ms Madigan said, adding that the settlement "holds Wells accountable and requires the bank to invest in the same communities it helped [to] destroy".

Officials said the fine was the second-largest imposed in a fair-lending case. It was, however, a good deal less than the $335m that Bank of America agreed to pay in November to settle allegations that its Countrywide mortgage unit similarly sold overpriced loans to minority customers during the mortgage-lending rush.

All of the leading US banks have donated heavily to Mr Romney, who, as the Republican nominee, is outstripping President Barack Obama in fund-raising, in part thanks to support from Wall Street. Wells Fargo is estimated to have given him $235,550 by the end of June, and Dan Bricken, the managing director at Wells Fargo Securities, will reportedly act as the co-host for one of two Romney fund-raising events in London this month.

The fines against Wells Fargo were announced by the US Deputy Attorney-General, James Cole, thus concluding a case investigated by the civil rights office at the Justice Department. "[The action] makes clear that we will hold financial institutions accountable, including some of the nation's largest, for lending discrimination," Mr Cole said.

The loans were not sold by the bank's internal retail mortgage division but by independent brokers. Wells Fargo said yesterday it would stop using outside brokers to sell its mortgage products.

The bank insisted it was not admitting culpability, saying: "Wells Fargo is settling this matter solely for the purpose of avoiding contested litigation with the [justice department] and to instead devote its resources to continuing to provide fair-credit services and choices to eligible customers."

Under the agreement, about 30,000 borrowers who were charged inflated fees for mortgages will each receive roughly $2,000 compensation. About $15,000 will be paid to each of around 4,000 customers who, according the government, were pressed into buying costly subprime loans because of their ethnicities.

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
tvThe C-Word, TV review
Arts and Entertainment
The Ridiculous Six has been produced by Adam Sandler, who also stars in it
filmNew controversy after nine Native American actors walked off set
Sport
Danny Jones was in the Wales squad for the 2013 World Cup
rugby leagueKeighley Cougars half-back was taken off after just four minutes
Life and Style
The original ZX Spectrum was simple to plug into your TV and get playing on
techThirty years on, the ZX Spectrum is back, after a fashion
ebooks
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Senior SEO Executive

£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

Recruitment Genius: Online Customer Service Administrator

£16000 - £18000 per annum: Recruitment Genius: An Online customer Service Admi...

Recruitment Genius: Digital Marketing Executive

£18000 - £22000 per annum: Recruitment Genius: This global, industry leading, ...

Day In a Page

'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Russell Brand's interview with Ed Miliband has got everyone talking about The Trews

Everyone is talking about The Trews

Russell Brand's 'true news' videos attract millions of viewers. But today's 'Milibrand' interview introduced his resolutely amateurish style to a whole new crowd
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before
'Queer saint' Peter Watson left his mark on British culture by bankrolling artworld giants

'Queer saint' who bankrolled artworld giants

British culture owes a huge debt to Peter Watson, says Michael Prodger
Pushkin Prizes: Unusual exchange programme aims to bring countries together through culture

Pushkin Prizes brings countries together

Ten Scottish schoolchildren and their Russian peers attended a creative writing workshop in the Highlands this week
14 best kids' hoodies

14 best kids' hoodies

Don't get caught out by that wind on the beach. Zip them up in a lightweight top to see them through summer to autumn
Robert Fisk in Abu Dhabi: The acceptable face of the Emirates

The acceptable face of the Emirates

Has Abu Dhabi found a way to blend petrodollars with principles, asks Robert Fisk