Wells Fargo will fork over $175 million to settle claims that it gave blacks and Hispanics risky subprime mortgages while steering whites to lower-interest loans.Under the settlement, Wells Fargo will compensate black and Hispanic borrowers who received subprime mortgages when white applicants with similar credit histories scored prime loans, the U.S. Department of Justice said in a statement Thursday.
Subprime loans carry exorbitant interest rates and helped burst the housing bubble that spurred the 2007 recession.
After the dangers of subprime loans became apparent, the U.S. attorney general established a fair lending unit of the DOJ’s civil rights division to go after subprime lenders that targeted minorities.
“The department’s action makes clear that we will hold financial institutions accountable, including some of the nation’s largest, for lending discrimination,” Deputy Attorney General James M. Cole said, in a statement Thursday.
“An applicant’s creditworthiness, and not the colour of his or her skin, should determine what loans a borrower qualifies for,” Cole added.
Wells Fargo said Thursday that it was only settling the suit to avoid litigation with the DOJ, and that it had stopped making subprime loans in 2008.
In December, Bank of America’s Countrywide unit entered into the largest-ever fair lending deal with the Justice Department to settle similar allegations.
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