Wells Fargo merger target of Las Vegas, N.Y. critics

Tuesday, Aug. 15, 2000 | 10:48 a.m.

A New York civil rights organization is asking the Federal Reserve to block Wells Fargo & Co.'s acquisition of First Security Corp., based on Wells Fargo's lending record to minorities in Las Vegas and other areas.

Matthew Lee, executive director of Inner City Press/Community on the Move, Bronx, N.Y., says Wells Fargo has engaged in predatory lending and has not complied with community reinvestment laws.

A Wells Fargo spokeswoman in Phoenix said the company is compliant with all statutes and it files reports with and is monitored by federal regulators.

"We're confident that the merger will be successful," said Marilyn Taylor of Wells Fargo. "Wells Fargo is excited about our future association with First Security."

The merger is expected to close Oct. 2.

But Lee says Wells Fargo's lending record should be carefully scrutinized by regulators who are considering the merger.

Gail Burks, president and chief executive officer of the Nevada Fair Housing Center and a member of the Southern Nevada Reinvestment and Accountable Banking Committee, said she serves on a national board with Lee and has brought his research to the attention of housing advocates in the West.

In addition to the points raised by Lee, Burks also said she is concerned about the company's community reinvestment plan and small business lending in the Las Vegas area.

"Their (merger) filing (with regulators) doesn't say what they are doing on community reinvestment," Burks said. "They say they are going to continue it, but there are no specifics. There should at least be some kind of plan."

The Community Reinvestment Act of 1977 obligates banks to fulfill credit needs of the local community in which they are chartered, particularly for low-income neighborhoods. Specifically, banks are required to make affordable loans for residential and commercial areas and in enterprise zones identified as low-income census tracts.

Lee said his organization is concerned that Wells' practices would be extended through First Security's 330 bank branches and to the company's CrossLand Mortgage subsidiary.

Lee says his organization has documented that Wells Fargo Home Mortgage, a lending subsidiary, disproportionately denies minorities access to normal interest rate loans. He says Wells pushes applicants denied loans to subsidiaries that offer loans at higher interest rates.

"Wells Fargo redlines communities of color across the United States with normal interest rate loans," Lee said.

"Redlining" is the practice of limiting lending activity in certain neighborhoods.

"Wells targets these communities with high interest rates and subprime loans," Lee said. "We call this predatory lending. Given Chairman (Alan) Greenspan's speech on March 22 of this year on predatory lending, expressing the Fed's concern, it is imperative that the Fed finally scrutinize Wells' subprime lending in this proceeding."

Lee's group analyzed newly released 1999 Home Mortgage Disclosure Act data from communities across the United States to reach its conclusion on Wells Fargo's lending practices. Lee said data from the Las Vegas Metropolitan Statistical Area bolster his organization's point.

Lee said that in Las Vegas in 1999, Wells Fargo Home Mortgage denied 28.7 percent of the conventional home purchase mortgage applications submitted by blacks while denying 7.2 percent of those submitted by whites. He compared that data with the denial rate of applications from low-income people vs. high-income people in Las Vegas.

While the denial rate of loans to blacks was about four times greater than those to whites, the denial rate of people with low incomes is only 1.9 times greater than to people with high incomes.

"Low income" is defined as those with incomes below 50 percent of the Las Vegas area's median level, while "high income" is defined as those at more than 120 percent of the area's median.

Lee says the analysis shows that Wells Fargo's decisions on loans are reached along racial lines and not income levels.

What's worse, Lee said, is that Wells then turns loan applicants that have been turned down to subsidiaries that loan money to higher-risk clients that must pay higher interest rates.

"While Wells Fargo disproportionately denies people of color access to conventional home purchase loans through Wells Fargo Home Mortgage," Lee said, "Wells Fargo's high-interest-rate, subprime lending affiliate, Norwest Home Improvement Inc., targets people of color."

Wells Fargo declined comment on Lee's statistics about the Las Vegas market.

Lee's lending complaints come at a time when Wells Fargo is on the verge of divesting branches in Nevada and three other states to comply with antitrust law.

A memorandum of competitive considerations issued to the Federal Reserve by Wells Fargo indicates that in the Las Vegas market, Wells believes it would divest seven First Security branches with deposits totalling $392.5 million. In the four states affected by the merger -- New Mexico, Idaho, Utah and Nevada -- the company is expected to divest 37 branches and $1.4 billion in deposits.

Burks said her organization will ask the Fed for an extension of the comment period on the bank's acquisition of First Security until after it is disclosed which bank branches would be divested.

Wells Fargo's Taylor said the decision on how many and which branches would be divested is up to the Federal Reserve. A decision is expected to be reached by the end of the month and Taylor said the public would be notified after employees of the affected branches are told.