Wells Fargo redlining plaintiffs seek class certification

Minority mortgage applicants suing Wells Fargo for "digital redlining" are moving to certify a class of 119,100 plaintiffs in a complaint their attorney is calling a serious civil rights matter.

Parties are disputing the bank's underwriting system that allegedly wrongfully denied, or gave higher interest rates to Asian, Black and Hispanic borrowers during the refinance boom. While total damages in the suit are uncertain, loan rejections and higher rates cost the potential class billions of dollars, said Dennis S. Ellis, partner at Ellis George LLP. 

"It's an important case in many respects for the individual Wells Fargo customers, but it would be a landmark case for customers, to try to prevent mortgage discrimination on a large scale," the interim lead class counsel told National Mortgage News.

The motion for class certification filed last week in a California federal court includes expert witness research on behalf of plaintiffs, finding Wells' underwriting system disproportionately impacted minorities. The bank is still using the system in question today, Ellis said and plaintiffs will seek an injunction to take it offline.

Wells Fargo in a statement Monday evening strongly disputed the accusations of fair housing and lending violations and said it did not discriminate against any of the eight named lead plaintiffs. 

"Wells Fargo does not tolerate discrimination in any part of our business," the bank's statement began. "These unfounded allegations stand in stark contrast to our significant and long-term commitment to closing the minority homeownership gap."

The bank did not address a question as to whether the alleged discriminatory underwriting system was still in use, but it stated that plaintiffs mischaracterized how its systems work, and that it's confident in its own reviews of its systems. 

Wells Fargo also said it was the largest originator of mortgages for minority customers for many years, including the 2018 to 2022 period specified by the class. Ellis in an additional filing last week said Rocket Mortgage and Loandepot were more prolific lenders to Black Americans over that time, according to a review of Home Mortgage Disclosure Act data performed by his colleagues. 

An attorney for Wells Fargo didn't respond to a request for comment.

The system in question, according to the motion, is Wells' Enhanced Credit Scoring, which is part of its underwriting technology. The ECS assigns applicants to credit risk classes. It allegedly began showing deficiencies because of COVID forbearances and a lack of late payment reports.

Average months in file, recent inquiries and major derogatories were drivers of disparities that would eventually impact specific borrowers, the motion claims. An expert witness retained by plaintiffs said the ECS model is a supervised machine learning model capable of showing "algorithmic bias."

The lawsuit stems from a February 2022 complaint, in which plaintiff Christopher Williams sued the bank for denying him a prime interest rate despite being well qualified. A second lawsuit followed, shortly after a Bloomberg report revealed research finding Wells had the largest lending disparity between Whites and minorities among major lending institutions at the height of the refi boom. 

The lawsuit so far has included reviews of over 160,000 documents and the deposition of 42 witnesses between the parties. Plaintiffs have also accrued at least $3 million in legal expenses in hiring experts.

A hearing on the class certification motion is scheduled for June 27 in a San Francisco courtroom. A jury trial is also scheduled to begin this December. 

The major financial institution faces other mortgage-related lawsuits, including a complaint filed last month over the fallout of the bank's prior loan modification errors. It also recently renewed its push to dismiss a separate complaint in California regarding refunds the bank issued in the past decade over wrongfully-administered rate lock extension fees. 

Wells Fargo announced its exit from correspondent lending and a reduction of its mortgage servicing portfolio early last year.