July 17, 2015 / 7:46 PM / 4 years ago

UPDATE 1-Wells Fargo wins dismissal of Chicago predatory lending lawsuit

(Adds details from decision, comments, case citation, byline)

By Jonathan Stempel

July 17 (Reuters) - Wells Fargo & Co on Friday won the dismissal of a lawsuit by Cook County, Illinois that accused the largest U.S. mortgage lender of violating the federal Fair Housing Act by engaging in predatory lending practices in the Chicago area.

U.S. District Judge Gary Feinerman in Chicago said dismissal was appropriate because Cook County was outside the FHA’s “zone of interests,” meaning that Congress did not authorize the county to bring claims under that law.

Cook County, which includes Chicago, accused Wells Fargo of targeting tens of thousands of black, Hispanic and female borrowers through “equity stripping,” where it imposed excessive or unnecessary rates and fees as well as refinancing penalties.

The county said this alleged misconduct boosted foreclosures, eroded property taxes, necessitated higher spending to combat blight, and caused at least $300 million of damages.

Steering minorities into costly loans is sometimes called “reverse redlining.” Chicago is the third most populous U.S. city.

Feinerman said Cook County had constitutional standing to sue Wells Fargo, but could not pursue an FHA claim because it “alleges neither that it was denied a loan nor offered unfavorable terms - setting aside the obvious point that Cook County is not alleged to have a race or other protected trait.”

The judge added that his decision did not mean or suggest that Wells Fargo did not violate the FHA or engage in reverse redlining, “or that the direct victims of Wells Fargo’s alleged misconduct do not deserve compensation.”

Feinerman said Cook County may file an amended complaint, but that he “doubts” that the problem can be fixed.

Cook County and its lawyers did not immediately respond to requests for comment.

Wells Fargo spokesman Ancel Martinez said: “We are pleased with the court’s decision and thoughtful analysis.”

The San Francisco-based lender is also the fourth-largest U.S. bank by assets.

The lawsuit is similar to others that Cook County brought against Bank of America Corp and Britain’s HSBC Holdings Plc.

Several large U.S. cities and counties have accused major banks in lawsuits of biased mortgage lending that prolonged the nation’s housing crisis. These lawsuits have had mixed success.

The case is County of Cook, Illinois v. Wells Fargo & Co, U.S. District Court, Northern District of Illinois, No. 14-09548. (Reporting by Jonathan Stempel in New York; Editing by Chizu Nomiyama and Andrew Hay)

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