CLEVELAND, Ohio — Wells Fargo has agreed to pour what could amount to millions of dollars into greater Cleveland as part of a settlement with the U.S. Justice Department over its lending practices to minorities here and across the country, federal authorities said Thursday.
Cleveland is one of eight metro areas that is expected to split $50 million from the settlement. Exactly how much the city could receive is unclear.
If the deal is approved by a judge, the money will go to metro markets “that experienced significant harm as a result of Wells Fargo’s conduct,” the Justice Department said. The money is expected to be used to help neighborhoods shuttered by the foreclosure crisis.
The settlement also includes $125 million in compensation to more than 34,000 borrowers who were either charged higher prices or steered to costlier loans based on their race, according to the Justice Department.
“Today’s settlement is a small but important step in the right direction in helping people who want to live in Cleveland,” said U.S. Attorney Steven Dettelbach. “It’s fantastic for Cleveland, but it also is a recognition of how hard the city was hit.”
Cleveland City Councilman Tony Brancatelli, who represents Slavic Village, an area hammered by the foreclosure crisis, agreed.
“This will absolutely help the city. But I trust that this is just a first step in an ongoing effort to clean up this mess. I want them to stay involved. There are too many zombie properties in the city.”
A lawsuit brought by the Justice Department says minorities in at least 82 areas in at least 36 states and the District of Columbia were victims of Wells Fargo’s discriminatory policies.
The company said it has treated all of its customers fairly, without regard to race. It said it entered the settlement “solely for the purpose of avoiding contested litigation with the Department of Justice and to instead devote its resources” to borrowers.
Federal prosecutors said the allegations stemmed from an investigation into Wells Fargo’s lending practices. The investigation included a review of internal company documents and non-public, loan-level data on more than 2.7 million Wells Fargo loans between 2004 and 2009.
The lawsuit alleges that Wells Fargo, between 2004 and 2008, steered more than 4,000 blacks and Hispanics into subprime mortgages when white borrowers with similar credit profiles received lower-interest, prime loans.
Dettelbach said the communities chosen to split the $50 million will be urged to use creative initiatives to help people live in the metro markets and move there.
In 2008, Cleveland sued Wells Fargo and 20 other major investment banks, alleging Wall Street icons such as Deutsche Bank, Goldman Sachs, Merrill Lynch and Wells Fargo created a public nuisance. In documents, the city said that over three years ending in early 2008, more than 80 percent of all foreclosures in Cleveland involved subprime mortgages.
A year later, a federal judge dismissed the suit. One of the reasons U.S. District Judge Sara Lioi cited was the fact that the city failed to demonstrate that the banks’ “conduct was the proximate cause” of the city’s issues.