Jones v. Wells Fargo (Los Angeles, California).

A Los Angeles jury today awarded damages of $3.5M in a lender liability class action against Wells Fargo.

The claim in Jones v. Wells Fargo was that Wells Fargo branches in Los Angeles selectively used software called “Loan Economics” to intentionally and systematically offer lower home mortgage loan rates to borrowers in non-minority neighborhoods than in predominantly minority neighborhoods because Wells Fargo believed that minority borrowers were less likely to shop for competitive rates.

In his closing argument for the plaintiff class, Barry Capello reviewed testimony indicating that Wells Fargo specifically discussed the fact that minorities were willing to pay more for home loans.

“Some people have 30, 40 percent of their income or more, every month goes to pay the mortage,” said Mr. Capello. “Are you telling me that her clientele didn’t mind paying a higher price? I’m telling you her clientele didn’t mind paying a higher price because they didn’t know they were paying a higher price…When Larry Garcia says it’s not about giving them the lowest price, it’s about service, etc., that’s just lip service, because this is all about getting the best price. That’s the harm in this case. You’re discriminated against. That’s bad enough. But add to it the economic harm. The lowest price is what we all want. Particularly on the most expensive thing we’ve got to spend. And when loan officers say my clients didn’t mind paying a higher price, you’ve got to stand up and say, ‘This has got to stop!’ Now Wells Fargo asks for its customers’ trust, and we say they then exploit it.”

On the class action claim, Mr. Capello told the jury there were 7,348 loans at issue, and the damages suffered by the class should be calculated at $4,000 per loan, totaling $29,392,000. In addition, Mr. Capello requested a finding of malice that would support a punitive damages award.

For Wells Fargo, Skadden Arps’ Tom Nolan told the jury, “If you find as a jury that Wells Fargo discriminated against borrowers, for God’s sake, hit us, with a big fine. But do so only on the evidence. Because a careful review of the evidence, not the incendiary language that’s used about the race issues in this country, should drive this verdict.“

Mr. Nolan told the jury that Loan Economics tool was not a national pricing program for the benefit of its customers that had to be offered indiscriminately, and therefore the Unruh civil rights law might not even apply to Wells Fargo’s use of the program. Moreover, the purpose of the tool was to increase loan volume and profitability, not to offer the lowest price on every loan. Finally, the implementation of the Loan Economics tool was expected to vary across branches; therefore, the inconsistent implementation was not a sign of discriminatory intent.

In any case, said Mr. Nolan, there was no way to determine whether any of the thousands of individuals loans was affected positively or negatively by loan economics, or the amount of the impact, without making assumptions for which there was no supporting evidence.

The jury deliberated nearly four weeks before determining that Wells Fargo did discriminate based on race, but only with respect to 880 loans. Damages of $4,000 were awarded for each of the 880 loans, for a total award to the class of $3.52M. The jury also found racial discrimination and breach of contract with respect to some of the named class members, and awarded additional damages. The jury did not find that Wells Fargo acted with malice.

CVN webcast live the opening and closing statements, as well as the verdict, in this Wells Fargo lender liability trial.

Jones v. Wells Fargo is a lender liability trial involving alleged racially discriminatory lending practices between 2002 and 2005.

Plaintiff attorney Barry Capello told the jury that Wells Fargo had a “program of discrimination,” that resulted in high home loan rates in minority areas.

According to Mr. Capello, Wells Fargo’s home loan rates were not competitive, but loan officers were unwilling to impair their own commission by offering lower rates. However, said Mr. Capello, it was widely understood in the loan industry that minority borrowers were less likely to shop for better rates.

Therefore, according to Mr. Capello, Wells Fargo introduced nationally a new software program called “Loan Economics,” which was supposed to be used for all loans. Loan Economics allowed loan officers to make home loans at lower rates without impairing their commissions.

But, Mr. Capello told the jury, Wells Fargo area and regional manager Tom Swanson prohibited loan officers from using Loan Economics in branches located in areas where minorities exceeded 50% of the population, such as Carson or El Segundo, but required the use of Loan Economics in branches located in areas with lower minority populations, such as Beverly Hills or West Los Angeles. As a result, approximately 7,000 minority borrowers in Los Angeles County allegedly paid more for their home loans than white borrowers.

For Wells Fargo, Skadden Arps’ Tom Nolan told the jury that Mr. Capello “will not and cannot establish that Wells Fargo or its employees used race, ethnicity, or level of income to discriminate using the Loan Economics program.”

According to Mr. Nolan, Loan Economics was not a pricing tool, and was not intended to provide higher or lower prices. Instead, the program was intended to focus on the problem of underages — loans offered at a discount rate, which normally would have required the loan officer to share part of their commission.

Loan Economics was not a mandatory tool, said Mr. Nolan, and in fact Loan Economics actually hurt loan officer commissions for some small loans. And where Loan Economics was not used, local market adjustments and a daily “price blast sheet” were always available for loan officers to provide lower rates in competitive situations without hurting their commissions.

Moreover, said Mr. Nolan, thousands of the loans in question, which were written without the assistance of Loan Economics, were written at rates lower than the bank’s minimum profitability threshold, and still received full commission.

Mr. Nolan told the jury that testimony by loan officers that the officers were not allowed to use Loan Economics would be shown to be false, and that the minority borrowers did in fact shop for better mortgage rates.

Watch opening statements in Jones v. Wells Fargo webcast by CVN.