Illinois Attorney General Lisa Madigan filed suit on Friday against Wells Fargo & Co , accusing the second-largest mortgage lender of steering blacks and Latinos into high-cost subprime loans.

As a result of its discriminatory and illegal mortgage lending practices, Wells Fargo transformed our cities' predominantly African-American and Latino neighborhoods into ground zero for subprime lending, Madigan said in a statement.

High foreclosure rates resulted from the illegal sales practices, the state's attorney general said.

Meanwhile, white borrowers with similar incomes received lower-cost loans from Wells Fargo, the fifth-largest U.S. bank, according to the lawsuit filed in Cook County Circuit Court.

Two black Chicago homeowners sued Wells Fargo on Monday in federal court in the Northern District of California, accusing the San Francisco-based lender of racial discrimination in how it sets rates and fees. Their lawsuit seeks class-action status.

The Illinois suit charged that a subsidiary, Wells Fargo Financial Illinois, misled borrowers in the state about their mortgage terms, misrepresented the benefits of refinancing, repeatedly refinanced or flipped loans, and used deceptive mailing and marketing tools to confuse borrowers.

The suit asked the court to rescind all unfair contracts and grant full restitution to affected consumers. It also asked the court to impose civil penalties for violations.

Wells Fargo is disturbed that the Illinois attorney general has chosen to file a lawsuit based on a complete mischaracterization of our long-standing commitment to fair and responsible lending, the bank's spokesman, Kevin Waetke, wrote in an email.

The policies, systems, and controls we have in place - including in Illinois - ensure race is not a factor in the pricing or products we offer, Waetke added.

The case is The People of the State of Illinois v Wells Fargo and Company; Wells Fargo Bank, N.A.; and Wells Fargo Financial Illinois Inc., No. 09CH26434.

(Reporting by Andrew Stern, editing by Leslie Gevirtz)

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