Similar suits were filed against Wells Fargo by the city of Memphis and surrounding Shelby County in Tennessee in 2009 and by the city of Baltimore in 2008. Those suits were settled earlier this year. Both settlements included $3 million to the local governments for economic development or housing programs and $4.5 million in down payment assistance to homeowners, as well as a lending goal of $425 million for residents over the subsequent five years, according to media accounts.
As in those cases, the lawsuit filed by the Georgia counties says the bank, in this case HSBC, targeted communities with high percentages of Fair Housing Act-protected minority residents, particularly blacks and Hispanics.
“Communities with high concentrations of such potential borrowers, and the potential borrowers themselves, were targeted because of the traditional lack of access to competitive credit choices in these communities and the resulting willingness of FHA protected minority borrowers to accept credit on uncompetitive rates,” the lawsuit says.
The lawsuit says minority borrowers were disproportionately targeted with high-cost loans between 2004 and 2007.
Before the beginning of the subprime lending boom in 2003, annual foreclosure rates in metro Atlanta averaged below 1 percent, but U.S. Department of Housing and Urban Development data show that the estimated foreclosure rates for each of the three counties now average more than 9 percent and are as high as 18 percent in the communities with the highest percentages of minority borrowers, the lawsuit says.
It is the alleged targeting of minority communities that entitles the counties to seek action against HSBC for loss of tax income and other expenses, the lawsuit says.
“If you can show that you yourself have suffered harm by an illegal act under the Fair Housing Act, even if you are not the target, even if you are not the intended victim, you can still sue to stop the behavior and to recover any damages that you can prove you suffered because of the violation of the Fair Housing Act,” said Steve Dane, a lawyer whose firm was involved in the Memphis and Baltimore lawsuits.
The costs incurred by counties because of high rates of foreclosure are reflected in court records and related fees for each home, and police and fire departments can calculate the costs of responding to a given address, Dane said. He said it takes a lot of time and effort to gather the necessary records to prove the harm.
Another discouraging factor could be a lack of political will, said Lisa Rice, vice president of the National Fair Housing Alliance.
“Politicians may not want to go up against the banks,” she said, adding that there will likely be other local governments that give this a try but she doubts the number will be high.
But Jaime Dodge, an assistant law professor at the University of Georgia, says she thinks more cases are likely, at least in the short term as municipal governments continue to feel the squeeze of a tight economy and seek ways to refill their coffers. They may try to test federal courts in different parts of the country, she said. Successes in multiple jurisdictions could lead to more attempts, but if courts start knocking the suits down that would likely discourage them, she said.