Wells Fargo, Minnesota’s second-largest employer, holds the title of the largest financial institution in the state. The banking giant has what it calls banking stores (180 in Minnesota), mortgage stores and financial stores dotting every area of the Land of 10,000 Lakes. But Wells Fargo also holds another title: the institution most likely to target minorities with high-cost (subprime) loans, regardless of income.
In fact, in a multi-state study last year by a variety of nonpartisan organizations, data indicated that Wells Fargo was 10 times more likely to sell a high-cost loan to African-American borrowers than whites. In Chicago, the city to suffer from the biggest racial disparities, 35 percent of African-Americans received high-cost loans (again, regardless of income) versus only 2.5 percent of whites. And how did the nefarious Countrywide Financial fare in this study? That financial institution had an African-American/white disparity ratio of 4.9, or half of that of Wells Fargo.
Wells Fargo’s practices have raised the hackles of residents and lawmakers across the country as of late: The city of Baltimore is suing the bank, claiming its lending practices unfairly targeted minorities. Sixty-five percent of Wells Fargo’s black customers in Baltimore received interest rates that were at least three percentage points higher than the federal benchmark, according to the New York Times. Earlier this year, Cleveland also sued Wells Fargo (along with a handful of other predatory lenders) for the subprime crisis that has resulted in a public nuisance in that foreclosure-decimated city. And in March, the Illinois Attorney General’s Office subpoenaed Wells Fargo to determine if the bank violated federal-lending and civil-rights laws by steering minorities into high-cost loans.
Wells Fargo doesn’t have nearly the presence in Illinois, Maryland or Ohio that it does here in Minnesota. And according to Geoff Smith, vice president of the Woodstock Institute, one of the economic organizations that authored the subprime-loan study, Wells Fargo consistently had some of the highest lending disparities in every market. (The Twin Cities did not appear in study.) If the company was engaging in targeting minorities with high-cost loans in Maryland, Smith notes, which has only about 2,000 Wells employees, it was quite likely doing it on a grander scale in Minnesota, where it has more than 20,000 employees. So why is it that such a major Minnesota lender is flying under the radar here and able to keep the appearance of clean hands? According to Smith, the bank’s large presence is one of the problems.
“One of the complications is the regulatory complexity of the banking system,” Smith says. “[State attorney generals] do not have authority over national banks. That is tied to federal regulatory agencies. And in the case of Wells Fargo, they have two sub holding companies: the bank and financial holdings. So in this case, it becomes more difficult to have authority over them. Having so many locations in Minnesota complicates things.”
But that doesn’t leave Wells Fargo off the hook. Brian Bergson, representative for Minnesota Attorney General Lori Swanson’s office, says that he cannot comment on complaints regarding Wells Fargo due to data privacy laws and that information is only made public once a case is closed. He did acknowledge, however, that he is aware of the study and the complaints.
For Smith, the biggest concern is that minority targeting happened at all. “Wells Fargo has a variety of products. They weren’t a pure subprime lender. But they still were more likely to target minorities with high-cost loans, even though they have both channels. Many people were offered teaser rates, and now their rates are doubling. If you look at what’s happening now because of it, it should be a major concern. It still concerns us, which is why we will continue to study what’s happening.”