Wells Fargo (NYSE:WFC) will pay Memphis and Shelby County in Tennessee $7.5 million in return for the city and county dropping a foreclosure-related racial discrimination lawsuit against the bank. According to the settlement, $4.5 million will be spent for mortgage down payments and home renovations for certain applicants, while the other $3 million will be used to improve local safety and provide financial literacy programs.
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Another $425 million will be made available to local borrowers by the bank over the next five years.
Wells Fargo was sued by borrowers for alleged discriminations, with Memphis and Shelby County insisting through a lawsuit in 2010 that the bank foreclosed in African-American neighborhoods more than in white neighborhoods. The suit alleged that 43 percent of Wells Fargo’s foreclosures were in mostly black neighborhoods, though only 15 percent of its loans originated there.
Wells Fargo has denied the allegations and the bank said in court filings that foreclosures were triggered “by the complex weave of life circumstances — job loss, illness, death, and divorce — that typically precipitate foreclosure, financial upheaval, and other personal tumult.”
Leigh Collier, Wells Fargo regional president for the Mid-South, said in a news release on Tuesday that the bank “agreed that it was in the best interests of everyone involved to work together rather than to continue to be involved in a protracted legal fight.”
The agreement, finalized last week, comes after months of negotiations.
“The condition of the local housing market continues to challenge Memphis and Shelby County significantly, as unoccupied homes and excessive housing inventory weigh heavily on communities,” Memphis Mayor A C Wharton Jr. said in a news release.
Earlier this year, Wells Fargo said in a securities filing that it could face civil charges from the U.S. Department of Justice under laws that prohibit discrimination against minority homebuyers. Wells Fargo was hit with an $85 million penalty last year by the Federal Reserve Board hit after charges the bank made borrowers take high-cost loans.