A federal judge denied class action certification to applicants suing Wells Fargo over alleged systemic discrimination against several Black and Hispanic mortgage borrowers because they lacked commonality among their claims.
Judge James Donato of the U.S. District Court for the Northern District of California noted that the plaintiffs are trying to consolidate "hundreds of thousands of home loan decisions" into a single class action, but, per precedent, plaintiffs must demonstrate a common factor connecting all these individual decisions. Plaintiffs can, however, file individual lawsuits, he said.
“Without some glue holding the alleged reasons for all those decisions together, it will be impossible to say that examination of all the class members’ claims for relief will produce a common answer to the crucial question why was I denied,” Donato wrote in a court document Tuesday. “Plaintiffs did not identify any ties that bind for purposes of commonality.”
The case was initially filed in 2022 by eight plaintiffs individually and as representatives of a nationwide class of similarly situated mortgage applicants.
The lawsuit alleged violations of the Equal Credit Opportunity Act, the Fair Housing Act of 1968, the Civil Rights Act, California's Unruh Civil Rights Act, and California's Unfair Competition Law.
Wells Fargo was accused of “digital redlining” since it implemented a centralized automated underwriting system, sometimes referred to as Common Opportunities Results Experiences, without enough or sometimes any human involvement, the lawsuit argued.
The plaintiffs claimed that the San Francisco-based lender discriminated against nonwhite applicants by targeting them with disparate loan policies, primarily through the CORE underwriting system that assigned them to lower credit risk classes, resulting in a lower rate of loan approvals. Additionally, Wells Fargo intentionally delayed processing the applications and offered less favorable terms to nonwhite applicants compared to similarly qualified white applicants, the plaintiffs said.
The plaintiffs emphasized Wells Fargo’s “decision to employ centralized, universal, race-infected lending algorithms to differentially assess, delay and ultimately reject residential lending applications.”
However, Wells Fargo contended that CORE functions as a “front-end workflow tool” that guides the loan origination process and does not make lending decisions or assign credit risk classes. It retrieves, stores and displays information from loan applications and other systems, the bank said.
A separate technology application assigns credit risk classes and analyzes applicant creditworthiness using loan application data and credit reports, Wells said. It contains tens of thousands of business rules grouped into 16 “business services,” including the “Get Risk Decision” service, with 14,000 rules and over 1,300 data attributes, the bank said.
Human underwriters, not automated systems, make final decisions, and there is no unified "CORE/ECS” or “policy” as claimed by plaintiffs, Wells said.
The bank’s senior vice president and business execution director for home lending has said that “underwriters are instructed that the Risk Engine never supersedes the judgment of the underwriter” and reiterated that humans do underwriting, according to the court document.
The plaintiffs do not dispute that human underwriters make the ultimate decision. Still, they argue that Wells Fargo overstates the significance of human involvement and that "disparate impact may be found even where there is some discretion in the process.”
Wells Fargo declined to comment on the federal judge's denial of class action status in the mortgage discrimination lawsuit.
