Wells Fargo & Co. is bracing for a crucial decision on whether a lawsuit concerning its mortgage denials to non-white applicants during the pandemic will attain class-action status, according to Bloomberg.
This lawsuit, consolidating several claims, could become a high-profile and costly case for the bank.
Key Allegations And The Class Action Motion
The plaintiffs allege that Wells Fargo’s credit-scoring algorithm unfairly impacted minority applicants.
They argue that all non-white applicants who applied for refinancing, home purchases, or home equity lines of credit from 2018 to 2022 were denied despite underwriting underwriting systems’ initial approval and are entitled to damages.
This proposed class could include over 119,000 individuals.
According to Dennis Ellis, the lead class counsel, Wells Fargo’s proprietary Enhanced Credit Score model disproportionately categorized Black and Latine applicants into higher-risk classes, subjecting them to more scrutiny than their White counterparts.
He claims this resulted in a significant number of minority applicants being unfairly denied loans, thus impacting their opportunities for wealth building through homeownership.
Wells Fargo’s Defense And Internal Findings
Wells Fargo has countered these claims, describing the plaintiffs’ arguments as “counterfactual and logically incoherent.”
The bank asserts that its scoring model is a workflow tool and does not make approval decisions.
Instead, it claims the model helps assign applicants to underwriters based on the strength of their credit profile, maintaining that its practices are race-neutral and consistently applied.
Documents revealed during the discovery phase provide further insight into Wells Fargo’s internal operations.
A 2022 study by the bank’s fair-lending analysts found that Black applicants were approved at less than 90% of the rate of White applicants with similar credit profiles.
Another study highlighted that the credit-scoring model assigned disproportionately lower scores to applicants from four out of five classes protected by fair-lending laws.
Despite these findings, Wells Fargo concluded that the scoring criteria were legitimate indicators of creditworthiness and kept the system in place.
Implications Of The Class Action Decision
The judge’s ruling on granting class-action status will significantly impact the lawsuit’s scope and Wells Fargo’s future.
If approved, the case will address the broader allegations of discriminatory lending practices, which could lead to substantial financial penalties for the bank.
This decision comes as Wells Fargo strives to move past a series of scandals that began in 2016 and led to major fines, settlements, and leadership changes.
The hearing for the proposed class certification is set for June 27, with a decision expected soon after that.
Image Credit: Angus Mordant/Bloomberg
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