The City of Philadelphia sued Wells Fargo & Co on Monday, accusing the largest U.S. mortgage lender of predatory lending, which violates the federal Fair Housing Act.
The lawsuit came two weeks after the U.S. Supreme Court, in a case also involving Wells Fargo, said cities can sue lenders for alleged discrimination that causes many defaults by minority borrowers, and harms cities through lower property tax revenue and increased costs to combat crime and blight.
Philadelphia's complaint adds to legal woes afflicting San Francisco-based Wells Fargo, which has since September been beset by a scandal over its employees' creation of unauthorized customer accounts to meet sales goals.
"The city's unsubstantiated accusations against Wells Fargo do not reflect how we operate," Wells Fargo spokesman Tom Goyda said in a statement. "Wells Fargo has been a part of the Philadelphia community for more than 140 years and we will vigorously defend our record as a fair and responsible lender."
Philadelphia accused Wells Fargo of having since 2004 steered minority borrowers into higher-cost, riskier loans than white borrowers, even if they qualified for loans with easier terms, and refused to let minority borrowers refinance.
The city said black borrowers were more than twice as likely to receive high-cost or high-risk loans than similar white borrowers, and Hispanic borrowers were roughly twice as likely.
It also said home loans in predominantly minority neighborhoods were 4.7 times more likely to be foreclosed.
Wells Fargo suffers from a "long history" of "red-lining," and practices that reflect a "total breakdown of appropriate internal controls" similar to its creation of bogus customer accounts, the complaint said.
Philadelphia had 1.57 million residents in 2015, ranking just ahead of Phoenix as the fifth-most-populous U.S. city.
According to the 2010 census, roughly 43 percent of Philadelphians were black and 12 percent were Hispanic.
The complaint filed in Philadelphia federal court seeks unspecified damages, plus an injunction against discriminatory lending.
It was brought by many of the lawyers who represented the city of Miami, Florida, in its Supreme Court case against Wells Fargo and Bank of America Corp.
In that case, Justice Stephen Breyer wrote for the majority that cities could sue under the Fair Housing Act by showing a "direct" link between the alleged misconduct and the asserted injuries.
The case is City of Philadelphia v Wells Fargo & Co et al, U.S. District Court, Eastern District of Pennsylvania, No. 17-02203.
(Reporting by Jonathan Stempel in New York; Editing by Dan Grebler)