Verdict Focuses on Commission Software

According to a news release from Cappello & Noel, a Los Angeles Superior Court jury awarded $3,520,000 to 880 plaintiffs in the class action.

Originally, the law firm targeted 7,000 class members, suggesting 90 percent of the class members were disqualified.

The plaintiffs closed on their loans between May 2002 and December 2005 at from Wells Fargo branches in minority neighborhoods located in Los Angeles County. The minimum loan amount was $150,000.

The case was brought under the Unruh Civil Rights Act.

Each class member will receive $4,000.

Wells Fargo Bank, the defendant, is accused of “consistently and knowingly” discriminating against borrowers whose properties were in minority neighborhoods. The lawsuit alleges that borrowers in predominantly white neighborhoods paid less than the plaintiffs included in the class.

“We are disappointed with the jury’s decision,” Wells Fargo Vice President Mortgage Communications Vickee J. Adams said in a telephone interview. “We do not believe it’s … in line with the law and facts of this case.”

The discrimination reportedly resulted from Wells Fargo’s “Loan Economics” computer program, which was introduced in 2002, the law firm said. The program allegedly enabled originators in non-minority neighborhoods to cut interest rates and points on some loans, while management withheld that option from their counterparts in minority neighborhoods.

Area managers reportedly blocked the option because it raised their own compensation, the news release said.

Cappello & Noel — which boasts more than $1 billion in verdicts, settlements, class action awards and workouts for its clients — claims that area managers in minority communities were “outraged” when they learned of the discrepancies.

But the tool was only an internal commission accounting tool and did not impact mortgage rates offered by “home mortgage consultants,” according to Adams. The “HMCs,” as Adams referred to the originators, arranges mortgages for borrowers.

“It was never a service to the borrower,” Adams explained. “It didn’t set the price an HMC would offer or discount any price that an HMC might offer.”

Adams said no evidence was presented that the class members paid more than similarly situated non-minority borrowers. She noted that the price of the loan was not impacted by management decisions or the use of the tool; it was a way that an originator could make a decision.

But the jury apparently disagreed.

“The jury found that the race, color, ancestry and/or national origin of the plaintiffs and the class they represent was a ‘motivating reason’ for Wells Fargo’s conduct,” Cappello & Noel said in its news release. “No systems are in place to prevent managers from engaging in the most insidious form of discrimination against customers who are least equipped to deal with it.”

For its part, Wells Fargo is evaluating its post-trial options, Adams indicated.

“We maintain, as we have from the beginning, that Wells Fargo is committed to serving all of our customers responsibly, fairly and without bias,” Adams stated.