Wells Fargo (NYSE:WFC) has agreed to pay out $432.5 million to settle a lawsuit over predatory lending to minority borrowers.

The city of Memphis, Tennessee, sued the bank claiming that it unfairly targeted low-income African-American communities for high-interest and high-fee loans. The city alleged that the bank used deceptive marketing, failed to properly explain the loan terms to borrowers, and then sold the loans on secondary markets to reduce its own risk, CNN Money reported.

During the financial crisis many of these loans went into default, leading to higher foreclosure rates in the affected communities, which then saw local housing prices fall in response.

The bank rejected the allegations in the suit, but opted to settle the litigation to avoid a protracted court battle.

Under the terms of the settlement agreement, Wells Fargo will lend up to $425 million to residents of Memphis and the adjoining counties with $125 million set aside for high-risk borrowers.

An additional $3 million will be paid to the city for economic development. Wells Fargo will also provide $4.5 million in funding for property improvements and community grants.

In documents filed with federal regulators in May, Wells Fargo noted that the Department of Justice was investigating it for predatory lending, but said it was cooperating with the government.

Last year, Bank of America (NYSE:BAC) agreed to a $335 million settlement with the Justice Department over charges of lending discrimination by Countrywide Financial, which it acquired in 2008.