Reputation Risk & the Consequences of Lending Discrimination: A True Story
Allegations of lending discrimination do not just get a financial institution in trouble with regulatory agencies. It can also anger consumers and organizations, causing the institution to lose business—even in business lines and subsidiaries that had nothing to do with the discriminatory practices.
Case in point: In April 2020, a customer claimed that Wells Fargo had denied her a mortgage loan after learning it was for a group home for people with disabilities. The Department of Housing and Urban Development (HUD) followed up and in March 2021 approved a conciliation agreement between the bank and the customer where Wells Fargo agreed to pay $125,000 to the customer and provide fair housing training for its employees, including home mortgage consultants, managers, and underwriters. It will also ensure that its policies do not violate the Fair Housing Act.
“Group homes for persons with disabilities are homes, just like any other, and mortgages may not be denied because individuals with disabilities will be living there,” said Jeanine Worden, HUD’s Acting Assistant Secretary for Fair Housing and Equal Opportunity. “HUD is committed to enforcing the Fair Housing Act to ensure that mortgage lenders comply with the nation’s fair housing laws and do not use discriminatory business practices.”
That is not where the story ends.
Summit County, Ohio, was set to use Wells Fargo Leasing to finance 11 copier leases and had a routine vote pending when a councilwoman asked the director of the county’s Department of Law and Risk Management to look into the company’s lending history, the Akron Beacon Journal reported. The headline: Summit County stops doing business with Wells Fargo over ‘discriminatory lending practices.’
The director found Wells Fargo had “a pretty bad history of discriminatory lending, predominantly against Blacks and Latinos but also and more recently against folks who offer homes to handicapped people." She agreed with the councilwoman that “it was highly inappropriate for us to be doing business with a company that has those kind of discriminatory lending practices.”
Will Wells Fargo or its leasing financing division be devastated by the loss of 11 copier leases? Of course not—but they should be concerned about public perception.
As more municipalities and businesses consider the social impact of business decisions, companies with less-than-stellar reputations will be at a disadvantage. Consumers and organizations will use factors like reputation when choosing partners, especially if it is a product or service with little variation in pricing. Discriminatory lending practices are not a good look.
This is not the first time in recent months a government agency has become involved in allegations of discriminating against the disabled when it comes to lending. Last year Bank of America was sued by the Justice Department for allegedly denying mortgage loans and home equity loans to adults with disabilities who were under legal guardianship or conservatorships. The policy has been in place between 2010 and 2016 and the proposed settlement would require BofA to pay $300,000 in compensation to victims.
Takeaway: Make sure your financial institution has clear, written policies and procedures that comply with all lending-related laws—and that staff is well-trained in following them. It just takes one misguided loan officer to create a regulatory and public relations fiasco that can trickle down into other elements of your business.