Wells Fargo & Co lost its bid to dismiss a lawsuit filed by the city of Los Angeles, which accuses the bank of predatory lending practices that targeted minority borrowers and led to the loss of property tax revenue.
U.S. District Judge Otis Wright II ruled on Wednesday that the city's claims were adequate for the case to proceed.
In the lawsuit, Los Angeles said the bank had engaged in discriminatory lending practices since at least 2004 by making loans to minority borrowers that they could not afford, resulting in a disproportionate rise in the number of foreclosures.
In the complaint filed by the city against Wells Fargo, former employees of the San Francisco-based bank described how the predatory loans were specifically marketed to minorities and minority communities in the city.
The city's lawsuit also said that Wells Fargo denied credit to certain borrowers based on their race.
Wells Fargo said it was prepared to defend its record as a responsible lender and its efforts to expand homeownership and to revitalize distressed neighborhoods in Los Angeles.
"The court’s decision to allow the city attorney’s lawsuit to proceed, while disappointing, in no way suggests that the claims ultimately will prevail," spokesman Gary Kishner said in an email.
The mortgage crisis in Los Angeles resulted in over 200,000 foreclosures and an estimated $78 billion in decreased home values from 2008-2012, according to a report cited by the city.
Property tax revenue losses during the same period are estimated to be $481 million, according to the report.
Major banks are fighting multiple legal battles related to their mortgage lending practices.
The city of Los Angeles filed separate lawsuits against Wells Fargo and Citigroup Inc last year, alleging that the banks were guilty of discriminatory lending since at least 2004.
The city had also filed a lawsuit against Bank of America in U.S. federal court in California in 2013.
The case is City of Los Angeles vs Wells Fargo & Co 13-cv-9007, U.S. District Court, Central District of California (Los Angeles).
(Reporting by Sudarshan Varadhan; Editing by Lisa Shumaker)