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CHICAGO (CBS) — Illinois Attorney General Lisa Madigan and the U.S. Department of Justice have reached a $175 million settlement with Wells Fargo on claims that the bank steered African-Americans and Latinos into risky subprime loans.
The settlement resolves a lawsuit filed by Madigan’s office in 2009, which alleged that Wells Fargo tried to sell black and Hispanic borrowers toward subprime loans more often than similarly-situated white borrowers. Wells Fargo also charged minority borrowers much more for the loans than white borrowers during the housing boom of the 2000s, Madigan alleged.
“Wells Fargo’s discriminatory lending practices were illegal. They helped destroy a generation of wealth in African-American and Latino communities in the Chicago metro area,” Madigan said in a news release. “Today’s settlement holds Wells Fargo accountable and requires the bank to invest in and help revitalize the same communities it helped to destroy.”
Madigan says about 3,300 Illinois borrowers are estimated to be victims of Wells Fargo’s practices. In her 2009 lawsuit, she alleged that Wells Fargo rewarded employees for placing customers in high-cost mortgages, and that despite similar financial standings, Wells Fargo charged an African-American customer about $2,397 more in broker fees than a white borrower on a $300,000 loan, and charged a Hispanic customer an average of $2,187 more than the white customer.
The victims will receive a total of $8 million from the settlement – with an average payout of $15,000 for steering victims, and $2,000 for overpricing victims.
But actual damages will depend on each individual case, Madigan’s office said.
Another $7 million will fund downpayment assistance for Illinois borrowers who need it.
The ruling also provides an independent administrator who will identify former Wells Fargo clients and distribute funds from the settlement.