Wells Fargo to pay $175 million to settle discriminatory lending charges

By Peter Schroeder - 07/12/12 12:43 PM ET

Wells Fargo has agreed to pay at least $175 million to settle claims it discriminated against Hispanics and African-Americans looking to buy homes for five years during the housing boom.

The Justice Department on Thursday announced the settlement, which is the second largest fair lending settlement in its history.

“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. “An applicant’s creditworthiness, and not the color of his or her skin, should determine what loans a borrower qualifies for."

The settlement is still subject to court approval, and has been submitted to a U.S. District Court. Under the government's complaint, the Justice Department charges that between 2004 and 2008, Wells Fargo steered roughly 4,000 African-American and Hispanic borrowers into pricier subprime mortgages when they would have qualified for prime loans. It also said the bank charged roughly 30,000 borrowers of those races higher fees and rates than comparable white borrowers.

In December, the government announced it had reached a $335 million settlement with Bank of America over discriminatory borrowing committed by Countrywide Financial, which the bank purchased in 2008. In that case, the government made similar allegations, saying more than 200,000 borrowers were discriminated against, including 10,000 that were steered needlessly into subprime mortgages.

Under Thursday's settlement, Wells Fargo would pay $125 million to compensate against wholesale borrowers that were subject to discrimination, with another $50 million to go towards direct down payment assistance in communities that were identified as subject to the discrimination and hit hard by the housing crisis. Wells Fargo neither accepts nor denies the government charges under the settlement.