An epic legal showdown between Wells Fargo bank and the city of

Baltimore will occur on Monday July 6 in the courtroom of U.S. District

Judge Benson E. Legg. The city of Baltimore is suing the bank for

engaging in deliberate predatory lending practices that targeted Black

and Latino consumers. Judge Legg will decide on whether the case can go

forward.

The Baltimore Sun reports that the suit has potentially far reaching implications:

"Barbara Samuels, a fair housing attorney for the American Civil

Liberties Union of Maryland, which has been following the case, called

it 'innovative' and potentially groundbreaking. 'The city filing rather

than the individual homeowners keeps the focus on pattern and business

practices, as opposed to getting lost in the weeds of individual

transactions,' Samuels said."

The Baltimore suit is part and parcel of a growing effort by

cities, states and civil rights groups to combat conscious

discriminatory practices by the country's leading banks, and was the

subject of a congressional hearing last week by the Joint Economic

Committee chaired by New York Rep. Carolyn Maloney. Opening the

hearing, Maloney said that "today, almost 1 in 6 subprime mortgages are

in foreclosure compared to 1 in 40 prime mortgages in the United

States."

The congresswoman stressed the premeditated steering of borrowers

by the banks: "Evidence continues to come to light that many of the

subprime borrowers who had pay stubs to prove their employment - and

may have qualified for prime loans - were steered into more costly no

doc loans by some lenders."

The congressional hearing was initiated by Rep. Elijah E. Cummings

of Baltimore after the appearance of a June New York Times article

pointing to Wells Fargo's practices. Citing the suit, Cummings said,

"The city's contention is that the discriminatory lending practices

pursued by Wells Fargo promoted high-cost loan instruments which led to

foreclosures far in excess of what the rate of foreclosure might

otherwise have been."

Testimony by expert witnesses at the hearing detailed a history of

capricious practices by the nation's largest banks. Robert Strupp, of

the Community Law Center, pointed to a pattern by financial

institutions of taking advantage of programs designed by the Federal

Housing Administration to help low-income borrowers.

As early as the 1970s, Strupp explained, "blockbusting" practices

developed as FHA loans were used by banks to get owners to sell quick,

with the banks then reselling the homes to minorities at inflated

prices. This resulted in a 500 count indictment of banks involved in

7,500 homes in New York City at the time.

In the 1990s, abuse of FHA loans was repeated, according to Strupp: "As

a result of these predatory practices, neighborhoods in the 1990s began

experiencing rising foreclosures, bankruptcies and neighborhood

disintegration. The gravity of the foreclosure situation at the time is

best perhaps demonstrated by the decision of the FHA to declare a

moratorium on FHA foreclosures."

Pointing to the racist and sexist consequences of the loans, the expert

witness pointed out that research by the Chicago Reporter newspaper

found that African Americans with incomes of $100,000 were twice as

likely to receive loans than whites making less than $35,000. Half of

the loans between 2003 and 2007 were made to women and in one year -

2006 - half of those loans were subprime.

Regulating the practices of the banks, while important, is not

enough, declared Gregory Squires, a professor of sociology at George

Washington University. "The concentration of income and wealth at the

top coupled with the concentration of poverty and persisting levels of

segregation and hypersegregation have nurtured significant increases in

subprime and predatory lending among vulnerable communities," he said.

"Reforming the regulation of financial services is a necessary but

insufficient step for ameliorating the crises created by recent lending

practices."

Squires described persistent and growing inequality, centered in

but not limited to a racial wage gap. "While African Americans and

Hispanics earn approximately two-thirds of what whites earn, wealth

holdings for the typical non-white family are approximately one-tenth

that of the typical white family," he said.

His figures indicate the emergence of a growing crisis: "Between

1970 and 2000, the number of high-poverty census tracts (those where 40

percent or more of the population is poor) grew from 1,177 to 2,510,

and the number of people living in those tracts grew from 4.1 million

to 7.9 million." Middle-income working class families, it seems, are

being increasingly driven into the ranks of the urban poor, who in turn

become targets of predatory lending.

Squires proposed several remedies including indexing the minimum

wage to increases in the cost of living and "enacting the Employee Free

Choice Act, which allows workers to form a union when more than 50% of

workers sign a card indicating their desire to do so in lieu of secret

elections, [which] would strengthen the role of unions in the U.S. and

their positive impact on wage inequality."

Sarah Bloom Raskin, commissioner for financial regulation in

Maryland, told lawmakers of the pitched battle between states and

national mega-banks, a struggle in which "state actions have been

hamstrung by the dual forces of preemption of state authority and lack

of federal oversight." In recent years the Bush White House

successfully lobbied the Supreme Court to reject state oversight of

banks.

Despite her state's best efforts, Raskin said, there has been a growing

epidemic of foreclosures, overwhelming remedial efforts. "In the past

12 months, over 100,000 Notices of Intent to Foreclose have been sent

to Maryland borrowers and to our office," she said.

Ominously, the state commissioner pointed to a new mortgage

epidemic as business elements take advantage of new programs and try to

get around regulatory measures: "Today, we see another mortgage storm

brewing in the area of loss-mitigation consulting. Historically, we

confronted fraudulent foreclosure transactions where title was conveyed

as part of a scheme to strip homeowners of their equity. Today, with no

equity left to strip, the ripoffs have become fee-based with so-called

consultants charging high up-front fees to vulnerable consumers to help

them get a loan modification."

It is hoped that the Obama administration's new financial

regulatory reform plan and consumer protection agency will address

these issues.

Raskin called for new laws that would allow states to regulate

national banks operating in their jurisdiction along with eliminating

the "federal preemption of the application of the state consumer

protection laws to national banks."

Joe Sims is the publisher of PoliticalAffairs.net and writes for the People's Weekly World, www.pww.org

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