Wells Fargo is closing your personal line of credit account. Here's what happens next


CNET 09 July, 2021 - 02:30pm 22 views

Why is Wells Fargo closing accounts?

Wells Fargo closing all personal lines of credit, which may affect customer credit scores. ... The bank said it is discontinuing the product so it can focus on personal loans and credit cards, and warned in its letter that the closure of the accounts "may have an impact on your credit score." The Week MagazineWells Fargo closing all personal lines of credit, which may affect customer credit scores

Is Wells Fargo getting rid of credit cards?

Wells Fargo will no longer offer personal lines of credit to customers and will shut down existing ones in the coming weeks, according to a CNBC report. ... Wells Fargo also warned customers that the account closures “may have an impact on your credit score,” CNBC reported. USA TODAYWells Fargo to end all personal lines of credit: It could affect credit scores

Banks don't often conduct closures like this, and if you're a Wells Fargo customer with a personal line of credit, you may be wondering how the change could impact your financial health. Here are a few answers.

"As we simplify our product offerings, we made the decision last year to no longer offer personal lines of credit as we feel we can better meet the borrowing needs of our customers through credit card and personal loan products," a spokesperson for the bank said in a statement.

The shuttering of another financial product by Wells Fargo CEO Charles Scharf comes after a tumultuous few years of federal investigation. In late 2017, the Federal Reserve imposed a cap on the bank's assets -- essentially preventing it from growing its balance sheet. The move came after an investigation revealed that Wells Fargo employees had opened checking and savings accounts without customers' knowledge. Account-holders were also forced to pay millions in credit and mortgage fees. In February 2020, the bank agreed to pay a $3 billion settlement to the Securities and Exchange Commission and the Justice Department, and the asset cap remains active until repairs to the compliance issues tied to the fake account scandal are completed. 

Amid the pandemic in 2020 and due to limitations set by the Federal Reserve, the bank halted new home equity lines of credit and announced it would no longer provide auto loans to most independent car dealerships, CNBC reported.

In February this year, the Federal Reserve approved Wells Fargo's proposal to overhaul internal risk management and governance practices, moving the bank one step closer to removing Federal Reserve sanctions. When asked whether the asset cap was a factor in no longer offering lines of credit, a Wells Fargo representative said the two issues were not related. 

Wells Fargo said that customers with open lines of credit would receive a 60-day notice before their account closures. The remaining balances will have a fixed interest rate attached and must meet monthly minimum payment requirements.  

In its statement, Wells Fargo acknowledged the inconvenience of account closures, "especially when customer credit may be impacted." Closing a credit account can hurt your credit scores by affecting the length of your credit history, especially if the account has been open for several years. It can also affect your credit utilization ratio, the amount of debt you owe compared to your total credit limit. The lower your debt-to-credit ratio, the better your credit score. For example, let's say you have three credit accounts:

The total debt above ($10,000) divided into the total credit limit ($30,000) equals a utilization ratio of 33%. Now let's assume that Account C is closed by the bank. When this occurs, your total credit limit automatically decreases to $20,000, and your credit utilization ratio climbs to 50%. 

While there isn't much you can do about involuntary account closure, you can safeguard other items on your credit reports. According to TransUnion, one of the three major US credit reporting agencies, the best way to minimize credit damage is to keep older accounts open and active to ensure your credit length is accurately represented. It's also a good idea to charge no more than 35% of your total limit on each credit account. 

If you currently rely on your Wells Fargo line of credit, you're probably a bit nervous about the next steps, especially if you still need quick access to cash. While every person's situation is different, there are a few things you can do. 

A direct deposit of news and advice to help you make the smartest decisions with your money.

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Wells Fargo tells customers it’s shuttering all personal lines of credit

CNBC 09 July, 2021 - 05:11pm

Wells Fargo is ending a popular consumer lending product, angering some of its customers, CNBC has learned.

The bank is shutting down all existing personal lines of credit in coming weeks and no longer offers the product, according to customer letters reviewed by CNBC.

The revolving credit lines, which typically let users borrow $3,000 to $100,000, were pitched as a way to consolidate higher-interest credit card debt, pay for home renovations or avoid overdraft fees on linked checking accounts.

"Wells Fargo recently reviewed its product offerings and decided to discontinue offering new Personal and Portfolio line of credit accounts and close all existing accounts," the bank said in the six-page letter. The move would let the bank focus on credit cards and personal loans, it said.

Wells Fargo CEO Charles Scharf has been forced to make difficult decisions during the coronavirus pandemic, offloading assets and deposits and stepping back from some products because of limitations imposed by the Federal Reserve. In 2018, the Fed barred Wells Fargo from growing its balance sheet until it fixes compliance shortcomings revealed by the bank's fake accounts scandal.

The asset cap has ultimately cost the bank billions of dollars in lost earnings, based on the balance sheet growth of rivals including JPMorgan Chase and Bank of America over the past three years, analysts have said.

It has also affected Wells Fargo's customers: Last year, the lender told staff it was halting all new home equity lines of credit, CNBC reported. Months later, the bank also withdrew from a segment of the auto lending business.

With its latest move, Wells Fargo warned customers that the account closures "may have an impact on your credit score," according to a frequently asked questions segment of the letter.

Another part of the FAQ asserted that the account closures couldn't be reviewed or reversed: "We apologize for the inconvenience this Line of Credit closure will cause," the bank said. "The account closure is final."

Wells Fargo didn't directly answer questions as to what role, if any, the Fed asset cap played in its latest move.

The bank gave this statement: "In an effort to simplify our product offerings, we've made the decision to no longer offer personal lines of credit as we feel we can better meet the borrowing needs of our customers through credit card and personal loan products."

After publication of this article, a Wells Fargo spokesman gave additional remarks: "We realize change can be inconvenient, especially when customer credit may be impacted," the bank said, adding that it was "committed to helping each customer find a credit solution that fits their needs."

Customers have been given a 60-day notice that their accounts will be shuttered, and remaining balances will require regular minimum payments at a fixed rate, according to the statement. When it was offered, the credit lines had variable interest rates ranging from 9.5% to 21%.

The move is a strange one given the banking industry's need to boost loan growth.  

After a burst of commercial lending during the early days of the pandemic, loan growth has been hard to muster. Corporations have used money raised in stock and debt issuance to retire bank credit lines, and consumers stuck at home had fewer reasons to use credit cards.

In fact, last year big banks experienced the first aggregate drop in loans in more than a decade, according to Barclays bank analyst Jason Goldberg. Of the four largest U.S. banks, Wells Fargo saw the worst decline.

After banks saw that borrowers held up far better than they had initially feared, the industry recently began marketing new credit cards with large sign-on bonuses in an effort to boost lending.

Wells Fargo doesn't disclose how many customers used the credit lines it is eliminating. It had $24.9 billion in loans in a category called "other consumer" as of March, which was 26% lower than the year-earlier period.

One customer said the change is prompting him to switch banks after more than a decade with Wells Fargo. Tim Tomassi, a Portland, Oregon, programmer, said he used a personal line of credit linked to his checking account to avoid expensive overdraft fees.

"It's a bit upsetting," Tomassi said in a phone interview. "They're a big bank, and I'm a small person, and it feels like they're making decisions for their bottom line and not for customers. A lot of people are in my position, they need a cushion every once in a while from a line of credit."

Tomassi said he is considering opening an account at Ally or Chime, banking players that don't charge overdraft fees.

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Why is Wells Fargo shutting down all of its existing personal lines of credit?

AS English 09 July, 2021 - 03:10pm

Wells Fargo, one of the largest banks in the US, faced backlash by consumers and policymakers this week over their move to “close down all existing personal lines of credit in coming weeks and has stopped offering the product,” CNBC reports. 

This news comes as the financial giant tries to rebuild its image after a major account scandal rocked the organization in 2016. The bank was found to have been pressuring branch workers to open more accounts, leading to over 3.5 million fake accounts between 2002 and 2017.

Once the lawsuit was settled, the US Federal Reserve restricted how the bank could manage financial assets until they showed that their practices have been improved and were in compliance with the law.

In simple terms, this means that the federal government places a cap on the number of loans, securities, and other financial assets the bank could take on. CNBC has reported that these caps have made it difficult for the bank to compete with rivals in the sector, including JP Morgan Chase and Bank of America.

The personal lines of credit that will be discontinued ranged in value from anywhere between $3,000 to $100,000. Last year, Wells Fargo also stopped issuing a few other lines of credits, including those for home equity and some of the auto loans offered.

In a statement offered to CNBC, the bank said that cutting these lines of credit was done “In an effort to simplify our product offerings," and that by eliminating these loans, the bank will can "better meet the borrowing needs of our customers through credit card and personal loan products.

However, on the Wells Fargo website, the page offering these loans is still active even though a letter abstained by CNBC stated that all accounts would be closed within the next sixty days.

The letter contained a Frequently Asked Questions section that warned holders of the loan that their credit score could be impacted. In response, Senator Elizabeth Warren tweeted, “Not a single @WellsFargo customer should see their credit score suffer just because their bank is restructuring after years of scams and incompetence.”

Not a single @WellsFargo customer should see their credit score suffer just because their bank is restructuring after years of scams and incompetence. Sending out a warning notice simply isn’t good enough – Wells Fargo needs to make this right. https://t.co/wyuuY2WEk5

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