Wells Fargo, Citi, BofA Dodge Miami Discrimination Lawsuit - Analyst Blog


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While disappointment descended on Wells Fargo & Company ( WFC ), Citigroup Inc. ( C ) and Bank of America Corporation ( BAC ) owing to their failed attempts to dismiss lawsuits filed by Los Angeles City, these major banks perhaps have a reason to celebrate now. The financial bigwigs have been able to escape from the clutches of litigation filed by the City of Miami as a federal judge dismissed the mortgage discrimination allegation against them.

Miami's Charge

The lawsuits filed by Miami in Dec 2013 in the U.S. federal court in Florida alleged that the banks were involved in discriminatory mortgage lending practices since 2004 that led to a spree of foreclosures. The banks provided overcharged (higher fees and interest rates) mortgage loans to minority borrowers. Precisely, the banks granted loans recklessly without paying any heed to the creditworthiness of the minority borrowers. This consequently resulted in defaults and falling property prices.

Miami was seeking compensation under the 1968 Fair Housing Act for lost property tax revenue owing to lower values and additional city expenses in the affected areas. However, U.S. District Judge William Dimitrouleas abandoned such a claim, ruling that the city lacked standing for claiming compensation under the act.

Notably, BofA won dismissal of the lawsuit earlier this week.  Dimitrouleas stated that the claims made by Miami were "marginally related" to the purpose of the act. The bank's involvement in the city's alleged damage was too nominal to file a suit.

Miami also sued JPMorgan Chase & Co . ( JPM ) for similar charges in June. However, the bank has not proceeded with an appeal for the dismissal of the lawsuit.

The Los Angeles Chapter

Owing to almost similar charges, Los Angeles City sued Wells Fargo, Citigroup and BofA last year, while JPMorgan was sued in June. The plaintiffs hold the banks accountable for tax revenue losses and rise in municipal services due to increased foreclosures.

U.S. District Judge Otis Wright II rejected Wells Fargo, Citigroup and BofA's separate appeals for dismissal, ruling that Los Angeles possessed grounds to seek claims under the fair-housing act.

Bottom Line

While the Los Angeles lawsuit frowns upon these major banks, the latest decision in favor of the banks in the Miami lawsuit provides them some relief from additional legal woes.

Many major banks in the U.S. are already battling several mortgage lawsuits that stemmed from the 2008 financial meltdown. Many of these lawsuits have been settled while some remain to be resolved. We believe such lawsuits may lessen with the gradual economic recovery and continued efforts by regulators to bring in financial stability.

Currently, Wells Fargo, Citigroup and BofA sport a Zacks Rank #3 (Hold).

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WELLS FARGO-NEW (WFC): Free Stock Analysis Report

CITIGROUP INC (C): Free Stock Analysis Report

BANK OF AMER CP (BAC): Free Stock Analysis Report

JPMORGAN CHASE (JPM): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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