Citigroup's Plea Over Lending Practices Suit Dismissed - Analyst Blog

The U.S. District Judge – Otis Wright II in Los Angeles rescinded the bid filed by Citigroup Inc. C regarding the dismissal of a lawsuit charged against the bank by Los Angeles City. The lawsuit accused it of discriminatory lending practices towards minority borrowers. The judge has ordered the plaintiffs to pursue the proceedings over their claims against Citigroup.

It has been notified that Citigroup was involved in predatory lending practices since 2004 and provided overcharged (higher fees and interest rates) loans to minority borrowers leading to increased number of foreclosures. Moreover, the bank has been accused by the city of discriminating against borrowers in providing loans based on their race.

Hence, this led to a rise in foreclosures in Los Angeles during the financial downturn. Further, the increased number of foreclosures lowered Los Angeles' revenue from property taxes and at the same time increased the expenditure for city services on these properties.

Notably, the mortgage crisis in Los Angeles led homeowners to lose around $78.8 million in home values following over 200,000 foreclosures from 2008–2012. Further, the city lost property tax revenue of around $481 million.

Last year, the three mortgage lenders – Citigroup, Wells Fargo & Company WFC, and Bank of America Corp. BAC were sued by the city for discrimination in lending practices. Of these, Well Fargo's plea to dismiss the case was rejected by the U.S. District Judge last month. Deutsche Bank AG had also been previously accused by Los Angeles of letting the foreclosed homes in low-income regions deteriorate to poor conditions. The case was settled in Jun 2013.

Most recently, JPMorgan Chase & Co. JPM has been sued by Los Angeles over its discriminatory lending practices.

For banks, legal headwinds are on the upswing. The banks continue to face several cases and probes regarding their business conduct preceding the financial crisis. Though the banks resolved many litigation issues in the past one year, increasing legal hassles keep dragging the financials downward.

Currently, Citigroup holds a Zacks Rank #3 (Hold).