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Oakland’s Lending Bias Case Waits on High Court

SAN FRANCISCO (CN) — Oakland's lawsuit against Wells Fargo will likely stay on hold until the Supreme Court decides whether cities can sue banks for alleged racist lending practices, a federal judge said Thursday.

The Supreme Court in June agreed to hear a challenge to an 11th Circuit opinion from 2015 which reversed a ruling and found that Miami has standing to sue Bank of America, Wells Fargo and Citigroup under the Fair Housing Act.

The banks say cities cannot sue for discriminatory lending because only individual borrowers, not governments, can suffer injury from discrimination.

Oakland sued Wells Fargo in September 2015, claiming the nation's third-largest bank steered black and Hispanic homebuyers into predatory loans, causing a cascade of foreclosures that cost the city millions in lost tax revenue.

During a Thursday hearing on Wells Fargo's motion to stay, U.S. District Judge Edward Chen cast doubt on whether the city could avoid a pause in litigation by showing it needs an injunction to prevent imminent harm.

"If there are foreclosures happening every day - a widespread foreclosure problem - that strengthens the argument for an urgent need," Chen said. "But if it's just one or two a month, secondary effects upon Oakland would seem to me turn on how many foreclosures there are and how many are addressable by an injunction."

Yosef Peretz, a private attorney representing Oakland, said a recent analysis of Wells Fargo loan data going back three years proves that the bank engaged in discriminatory lending, which bolsters the case for a preliminary injunction.

The city found seven examples of Hispanic borrowers who were given loans with higher interest rates than white borrowers who made less money and had fewer assets.

"We believe we demonstrated the prima facie case of discrimination," Peretz told the judge.

Wells Fargo attorney Bart Williams accused the city of drawing false conclusions from its analysis, and said that two of those seven "predatory" loans were paid off in full and that the borrowers still live in their homes today.

Williams argued that the city cannot show it will suffer irreparable harm in the next seven months, as the Supreme Court considers the standing issue.

"Right now the housing market in Oakland is flourishing," Williams said. "The property values are going up."

If the city were to show the bank's lending practices are causing foreclosures, Chen asked what kind of relief the city would request to address it.

Peretz replied that the city would seek an injunction to stop the bank from targeting minority borrowers with higher-cost, predatory loans.

Chen responded: "Not every rate spread loan is inherently evil or predatory. Under some circumstances, it's better than a payday loan. Isn't that overkill?"

Peretz conceded not all loans are inherently bad, but said the bank could put in place new mechanisms and screening procedures to prevent discriminatory conduct.

Ultimately, Chen said he would grant Wells Fargo's request to stay the case until the Supreme Court rules, but said he would consider lifting the stay if the city can demonstrate imminent harm.

"I'm very much inclined not to grant leave to file a motion for preliminary injunction, but if you think you can, identify issues such as actual harm to the city," Chen said. "All these questions seem very speculative to me so I'm going to warn you right now that it is going to be a tough position for you to overcome."

Though he granted the bank's motion for a stay, Chen refused to freeze discovery, finding that could leave both sides at "square one" if the case proceeds after the Supreme Court rules next year.

Chen ordered the parties to meet and confer on a plan for Wells Fargo to turn over discovery on its loan data from before September 2013, when the statute of limitations kicked in on the city's claims.

Oakland seeks evidence dating back to 2004 to support its argument that Wells Fargo has engaged in a continuing violation and should be held liable for unlawful conduct before 2013.

In April, Chen dismissed Oakland's claim of unjust enrichment, finding Wells Fargo did not unfairly benefit from the city's deployment of additional resources to deal with foreclosed homes. But Chen refused to dismiss claims of discriminatory lending under the federal Fair Housing Act and California Fair Employment and Housing Act.

The Supreme Court is expected to issue a decision in Miami v. Bank of America by June 2017.

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