Jones v. Wells Fargo is a lender liability trial involving alleged racially discriminatory lending practices between 2002 and 2005.
Plaintiff attorney Barry Capello told the jury that Wells Fargo had a "program of discrimination," that resulted in high home loan rates in minority areas.
According to Mr. Capello, Wells Fargo's home loan rates were not competitive, but loan officers were unwilling to impair their own commission by offering lower rates. However, said Mr. Capello, it was widely understood in the loan industry that minority borrowers were less likely to shop for better rates.
Therefore, according to Mr. Capello, Wells Fargo introduced nationally a new software program called "Loan Economics," which was supposed to be used for all loans. Loan Economics allowed loan officers to make home loans at lower rates without impairing their commissions.
But, Mr. Capello told the jury, Wells Fargo area and regional manager Tom Swanson prohibited loan officers from using Loan Economics in branches located in areas where minorities exceeded 50% of the population, such as Carson or El Segundo, but required the use of Loan Economics in branches located in areas with lower minority populations, such as Beverly Hills or West Los Angeles. As a result, approximately 7,000 minority borrowers in Los Angeles County allegedly paid more for their home loans than white borrowers.
For Wells Fargo, Skadden Arps' Tom Nolan told the jury that Mr. Capello "will not and cannot establish that Wells Fargo or its employees used race, ethnicity, or level of income to discriminate using the Loan Economics program."
According to Mr. Nolan, Loan Economics was not a pricing tool, and was not intended to provide higher or lower prices. Instead, the program was intended to focus on the problem of underages -- loans offered at a discount rate, which normally would have required the loan officer to share part of their commission.
Loan Economics was not a mandatory tool, said Mr. Nolan, and in fact Loan Economics actually hurt loan officer commissions for some small loans. And where Loan Economics was not used, local market adjustments and a daily "price blast sheet" were always available for loan officers to provide lower rates in competitive situations without hurting their commissions.
Moreover, said Mr. Nolan, thousands of the loans in question, which were written without the assistance of Loan Economics, were written at rates lower than the bank's minimum profitability threshold, and still received full commission.
Mr. Nolan told the jury that testimony by loan officers that the officers were not allowed to use Loan Economics would be shown to be false, and that the minority borrowers did in fact shop for better mortgage rates.