MEMPHIS, TN – Memphis and Shelby County leaders have filed a federal lawsuit against Wells Fargo, claiming the company’s lending practices have violated the Fair Housing Act and "wreaked havoc" in Memphis and Shelby County. Memphis Mayor A C Wharton said homeowners are not the only ones who feel the loss during a foreclosure, he believes the city and county suffer too.
“We're here because we want to go on record today of affirming our belief that the unfair lending practices that have wreaked havoc on individuals and families have also impacted the larger community,” Wharton said. “Many of the bad loans that have been doled out by unscrupulous lenders has been like giving families wooden boats with crepe paper bottoms.”
Shelby County Mayor Joe Ford agreed.
"When a lender like Wells Fargo engages in illegal practices that cause a lot of foreclosure in a short period of time, the county loses a lot of money, and a good part of it is tax revenue,” Ford said. “This is money that should be spent on providing basic services on our citizens. As we struggle through these tough times, we really, really feel the loss.”
John P. Relman, an attorney spearheading the lawsuit, said “the claim here is reverse ‘red-lining.’”
"The bank draws a circle around an area or targets a community, and makes bad loan products in that neighborhood because they think they can get away with it, and they think they can make a lot of money doing it,” he said. “So they will charge people higher interest rates, or more fees, or get them into loans that maybe will never succeed.
“The reason we're concerned here is because the foreclosure rate is eight times greater in the minority than in the white community,” he continued. “What that tells us is Wells Fargo, which knows how to predict the likelihood of foreclosure, and how to determine if someone's going to foreclose, is eight times more likely to be wrong in the black community than in the white community.”
Relman said the move is profitable for banks.
“People say ‘why would they do that?’” Relman said. “They do that because they make money at the time of the sell, and then they sell the loan on the secondary market, so the risk is gone, the risk leaves their bank, so they don’t have to worry about if the loan defaults.”
The lawsuit seeks unspecified compensation from Wells Fargo, and a court injunction to stop foreclosures.
“These are very astute people who knew the difference between a good loan and a bad loan,” Wharton said. “Sure, there was federal pressure to make loans to groups who were customarily ‘non-banked,’ as we often say, who didn’t have access to traditional credit. Sure, and that’s a good motive. But, as is the case with most federal programs, there’s going to be abuse. And we think that this is one instance in which what was intended for good was exploited to be used for ill.”
The lawsuit would not put money in the hands of individual homeowners, but Wharton believes a victory in court will be a victory for homeowners. He hopes it forces Wells Fargo to handle all foreclosures in front of a judge.
“If Wells Fargo were to say 'yeah, we're willing to come up with a process like that,’ I would welcome that, but we can't make them because Tennessee law doesn't require a judge to be involved in the foreclosure process," Wharton said.
Wharton added that he hoped the lawsuit would be a “red flag” for companies in the future.
“The bottom line will be that if you come in here you better come in here right, because there’s somebody looking at you,” he said.
As for how much compensation the Memphis and Shelby County want, Relman said that will depend on the number of foreclosures in the city and county, and how much tax revenue has been lost. He said Wells Fargo has 20 days to respond to the lawsuit.
"[Wells Fargo] can answer the complaint, which is simply to respond to the allegations and say we deny them, or they can admit them, either one, or they can file a motion to dismiss," he explained. “A motion to dismiss is something that says legally you have no basis for this lawsuit and we want the judge to throw it out.”
A Wells Fargo spokesman responded to news of the lawsuit with this email statement:
“While we have not had an opportunity to review the specifics of the suit, the allegations referenced in earlier news reports about Wells Fargo’s lending practices are baseless and inaccurate. Other courts have found similar suits against lenders to be without merit, and we are confident of a similar outcome here.
We believe communities are ultimately better served when elected officials and lenders work collaboratively to address the current economic issues facing our neighbors. To that end, we remain committed to our customers in Memphis and Shelby County, and proud of our lengthy record leading the industry in fair and responsible lending practices and in support of the communities we serve.”
