Philadelphia is seeking lost property tax revenue from Wells Fargo in a federal lawsuit filed against the banking giant alleging discriminatory bank lending practices that targeted minority borrowers.
The suit filed Monday in the United States District Court for the Eastern District of Pennsylvania alleges that Wells Fargo starting in 2004 violated the Fair Housing Act by steering African-American and Latino borrowers towards high-cost or high-risk loans even in cases where they would have qualified for more advantageous financing. The complaint seeks monetary damages based on the city’s loss of property tax revenue resulting from unpaid taxes on abandoned properties as well as a drop in tax collections due to the decreasing value of parcels in foreclosure.
“The practices of Wells Fargo disproportionately affected minority borrowers here in Philadelphia,” Mayor Jim Kenney said in a statement. “Because many of these loans resulted in foreclosures, all neighborhoods throughout the City suffered the harm.”
The lawsuit was filed after a May 1 U.S. Supreme Court ruling involving the City of Miami stating that cities are legally entitled to bring claims against major lending institutions under the FHA for discriminatory loan practices that resulted in increased foreclosures, lost tax revenue and increased use of government resources. City officials said an analysis conducted by its outside counsel found that 23.3% of loans from Wells Fargo to minority customers in Philadelphia were high-cost or high-risk compared to just 7.6% for whites.
The Philadelphia City Council has also taken aim at Wells Fargo with a May 2 vote to replace the bank as a depository for its $2 billion payroll account with Citizens Bank. The action followed other governments that have cut business ties with the San Francisco-based company in the wake of high-profile allegations of practices hostile to consumers.
Wells Fargo spokesman James Baum called the city’s accusations “unsubstantiated” and said the law is on the bank’s side.
“These types of cases have been pending in other states and have been rejected by all courts who have addressed the merits of the claims,” said Baum. “Wells Fargo has been a part of the Philadelphia community for more than 140 years and we will vigorously defend our record as a fair and responsible lender. “
An April 25 report released by Philadelphia Controller Alan Butkovitz showed that the city needs to collect $44 million in real estate taxes in the last three months of the 2017 fiscal year to meet budget projections. The city’s allocates 45% of the tax into its general fund and ships 45% to the Philadelphia School District.
Philadelphia has credit ratings of A2 from Moody’s Investors Service and A-minus from both S&P Global Ratings and Fitch Ratings. Pennsylvania’s largest city had $1.5 billion of outstanding general obligation bond debt in late 2016, according to Moody’s.