By Jonathan Stempel
(Reuters) - A federal judge in Philadelphia on Tuesday rejected Wells Fargo & Co's bid to dismiss that city's lawsuit accusing the largest U.S. mortgage lender of predatory lending targeting black and Hispanic borrowers.
U.S. District Judge Anita Brody said Philadelphia may pursue claims that the bank's alleged "reverse redlining" violated the federal Fair Housing Act, though she had "serious concerns" about whether claims of economic harm could survive.
Wells Fargo spokesman Tom Goyda said in an email that the decision, "while disappointing, in no way suggests that the claims ultimately will prevail. Wells Fargo has been a part of the Philadelphia community for more than 140 years and we are prepared to defend our record as a fair and responsible lender."
Mike Dunn, a spokesman for Philadelphia, said the city "looks forward to developing further evidence of Wells Fargo's alleged discriminatory practices."
The lawsuit is one of several against big lenders by major U.S. cities claiming that mortgage lending discrimination causes more defaults by minority borrowers, lower property tax revenue, and higher costs to combat crime and blight.
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It is separate from the scandal over the creation by San Francisco-based Wells Fargo of unauthorised customer accounts.
The third-largest U.S. bank by assets on Friday said it set aside $3.25 billion last quarter to cover litigation for those accounts and other issues.
Philadelphia accused Wells Fargo of having since 2004 steered minority borrowers into higher-cost, higher-risk loans than white borrowers, even if they qualified for safer loans.
It also said black and Hispanic borrowers were respectively 4.1 times and 2.6 times more likely to go into foreclosure on those costlier, riskier loans.
Wells Fargo countered that Philadelphia could not show that bank policies had a disparate impact on minority borrowers, and that the city's claims could not be substantiated, were too "remote" from any improper conduct, or were brought too late.
Brody found "some direct relation between discriminatory lending and the harms to the city's goals of fair housing and an integrated community," such as reduced minority homeownership or greater impediments for minorities to buy homes.
The judge expressed "serious concerns about the viability of the economic injury aspect of the city's claim with regard to proximate cause," but said Wells Fargo did not show why the entire FHA claim should be dismissed.
Philadelphia had 1.57 million residents in 2016, ranking sixth among U.S. cities. The 2010 census said roughly 43 percent of Philadelphians were black and 12 percent were Hispanic.
The case is City of Philadelphia v Wells Fargo & Co et al, U.S. District Court, Eastern District of Pennsylvania, No. 17-02203.
(Reporting by Jonathan Stempel in New York; Additional reporting by Nate Raymond in Boston; Editing by Lisa Shumaker)