Disparate impact
In Re: Wells Fargo
Date: Aug. 6, 2025
Issue: Whether a proposed class sufficiently demonstrated commonality to justify certification in its mortgage discrimination lawsuit against Wells Fargo.
Case Summary: A California federal court denied class certification in a mortgage discrimination suit against Wells Fargo, ruling the proposed class did not establish a disparate impact claim because they failed to present “robust causality” and commonality.
Common Opportunities Results Experiences (CORE) is a front-end workflow tool that guides the loan origination process. ECS, or enhanced credit score, considers inputs, such as credit bureau report attributes, and results in a numerical score that is translated into a credit risk class.
In February 2022, Christopher Williams sued Wells Fargo alleging it discriminated against him in a mortgage application. He alleged that after identifying himself as Black, Wells Fargo used a “unique scoring model” to offer him an interest rate 3% higher than its prime rate despite his strong credit score.
Williams sought class certification, claiming Wells Fargo’s CORE/ECS policy arranges minority applicants into unfavorable risk classifications, which leads to lower approval rates for minorities. The proposed class consisted of minority applicants who were denied a loan, received higher interest rates with less favorable terms, or experienced slower processing times than white applicants since Jan. 1, 2018.
Opposing class certification, Wells Fargo pointed to the Supreme Court’s 2015 Inclusive Communities decision. Inclusive Communities held that statistical disparities alone cannot establish a disparate impact claim, and a robust causality requirement ensures that racial imbalance does not, without more, establish a prima facie case of disparate impact. Wells Fargo argued broader societal inequality — not its own conduct — caused any lending disparities the proposed class alleged. Wells Fargo also underscored its CORE/ECS underwriting system was not a single uniform program and did not apply commonly across the proposed classes, because each loan application depended on different policies and variables that could affect the outcome.
Judge Donato denied class certification after finding that the proposed class failed to establish commonality. Under Rule 23(a)(2), plaintiffs must demonstrate common legal or factual questions and show that all class members suffered the same injury. To establish commonality, the proposed class relied on disparate impact under the FHA and ECOA, which required them to prove a neutral policy, a significant and disproportionate effect on a protected class, and a robust causal link between the policy and the disparity. But the court ruled the proposed class failed to adequately allege robust causality.
“Plaintiffs did not present any class-wide evidence whatsoever of robust causality” and “instead focused like a laser on the statistical disparity in application denial rates, without anything in the way of explanatory factor,” according to Judge Donato. He concluded the proposed class did not demonstrate a connection between the CORE/ECS system and the statistically significant disparities in approval rates, and the proposed class presented no evidence of how the CORE/ECS system might have caused racial disparities in approval rates. Moreover, the proposed class sought to challenge hundreds of thousands of home loan decisions at once, but according to Judge Donato, “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.”
The court also pointed to Inclusive Communities’ mandate to caution against a results-focused approach for examining disparate impact. For instance, the Supreme Court noted it “may be difficult to establish causation because of the multiple factors that go into investment decisions about where to construct or renovate housing units. According to Judge Donato, the record demonstrates that each underwriting decision was complex and involved numerous factors. “It is certainly true that complexity alone is not an inherent barrier to certification, but when the undisputed facts indicate the application of up to 14,000 rules in deciding whether to make a loan, plaintiffs needed a good explanation of commonality with respect to the cause or source of race discrimination.”
The court also rejected the proposed class’s disparate treatment theories. Wells Fargo argued that the class relied only on a disparate impact theory for certification, while the proposed class claimed they also alleged disparate treatment, asserting that Wells Fargo’s continued use of the CORE/ECS system against Minority Applicants constituted unlawful disparate treatment. The court concluded that the proposed class was not on solid ground. Relying on Wal-Mart Stores, Inc. v. Dukes, the court held that statistical evidence alone cannot establish commonality under Rule 23(a)(2), and the proposed class’s disparate treatment argument did not change that result.
Bottom Line: Williams’ claims will be tried on an individual basis rather than in a class action.
Documents: Opinion
