SAN FRANCISCO (CN) — Wells Fargo on Thursday asked a federal judge to reject Oakland’s lawsuit claiming the bank’s racist lending practices cost the city millions in lost tax revenue.
“If a borrower got a bad loan, did they default because of that or because they lost their job?” Wells Fargo attorney Paul Hancock, of K and L Gates in Miami, asked during the Thursday hearing.
Oakland sued Wells Fargo in 2015, claiming the bank steered minority homebuyers into predatory loans that caused hundreds of foreclosures, lost tax revenue, and extra city spending to tackle blight and abandoned homes.
The lawsuit was put on hold last year pending the Supreme Court’s ruling in Bank of America v. Miami.
Relying on the Supreme Court’s murky ruling for guidance, U.S. District Judge Edward Chen struggled to surmise whether Oakland’s claims against Wells Fargo can survive a motion to dismiss.
Chen said the Supreme Court’s May 2017 ruling in Bank of America v. Miami was “not so clear.”
The Supreme Court ruled that cities can sue for violations of the Fair Housing Act, but kicked another important legal question back to the 11th Circuit. It asked the appeals court to define “the contours of proximate cause”: when a violation of law is sufficiently related to an alleged injury; and to “decide how that standard applies to the City’s claims for lost property-tax revenue and increased municipal expenses.”
Representing Oakland, Robert Peck with the Center for Constitutional Litigation in Washington, D.C. said the bank’s racist lending practices directly caused the city to spend its limited resources tackling foreclosure problems.
“The city has to spend money to knock down or rehabilitate a structure falling apart,” Peck said. “Suddenly a place where vagrants converge, the city has to chase them away. Those are sufficiently direct.”
Peck said the costly and unfavorable loans also make it harder for borrowers to afford home maintenance costs, leading to blight that reduces property values and city tax revenue.
“The overall value of the home is down,” Peck said. “Property taxes are immediately affected.”
But Chen replied that several factors can affect whether a homeowner maintains a property, which can in turn affect property values in a neighborhood.
“Upkeep of the home might depend on how resourceful the person is, pride in ownership, the neighbors they might have,” Chen said.
Turning to claims that the city spent more to police areas with abandoned and foreclosed homes, Chen said tracing those increased costs to the bank’s alleged misconduct might pose a problem.
“Let’s say there are a bunch of foreclosures. It doesn’t necessarily follow there will be an increase in police expenditures,” Chen said. “It may turn on unemployment and crime rates. It may depend on several things.”
The judge appeared more willing to accept the city’s argument that the bank’s conduct has frustrated its mission to promote racially diverse housing.
Chen asked if Wells Fargo should be held liable for impairing integration by giving unfavorable loans to minority borrowers, knowing those loans probably will result in defaults and foreclosures.
Hancock replied that although cities have an interest in promoting diversity, they do not necessarily have a legal claim for violations of the Fair Housing Act.
“It has to be a diversion of resources of X amount of dollars to challenge the particular conduct they allege to be discriminatory,” Hancock said.
Asked if there were any scenario in which the bank could be sued by the city for a Fair Housing Act violation, Hancock replied that it could happen if the bank refused to issue loans to minority borrowers or for homes in minority neighborhoods, a practice known as redlining.
Toward the end of the 90-minute hearing, Chen suggested that he may dismiss some of the city’s claims, but some may survive.
“It may be that certain claims are closer to the mark,” Chen said.
The claim that Wells Fargo’s conduct frustrated the city’s mission to promote racially diverse housing “appears to have a closer proximity than I would say the increased enforcement costs because of higher vacancies due to higher foreclosure rates,” Chen said.
Speaking in the hallway after the court hearing, Oakland City Attorney Barbara Parker said this lawsuit is important because Wells Fargo must be held accountable for preying on Oakland’s minority homebuyers.
“This is not a small grocery store owner who doesn’t know the law,” Parker said. “They are powerful and profitable. With all the power and money they have, they are still treating people differently, and it continues to this day.”
Wells Fargo, the nation’s third-largest bank in assets, paid a $1.2 billion settlement to the Department of Justice last year for fraudulently certifying loans as eligible for government insurance. That’s on top of $175 million the bank paid in 2012 for claims that it steered African-American and Latino borrowers into risky subprime loans from 2004 to 2009. And the bank suffered an even bigger scandal this year for opening millions of new accounts without its customers’ knowledge, or pressuring them to do so with high-pressure, deceptive tactics.