A pedestrian in a protective mask walks past a bank branch of Wells Fargo & Co on Thursday, July 9, 2020. in New York, USA.
Peter Foley | Bloomberg | Getty Images
Wells Fargo is ending a popular consumer loan product, angering some of its customers, The Washington City Times has learned.
The bank will cut all existing personal lines of credit in the coming weeks and will no longer offer the product, according to letters from customers reviewed by The Washington City Times.
The revolving lines of credit, which typically allow users to borrow $3,000 to $100,000, were used as a way to consolidate higher-interest credit card debt, pay for home renovations, or avoid overdrafts on linked checking accounts.
“Wells Fargo recently reviewed its product offering and decided to stop offering new personal and portfolio credit accounts and close all existing accounts,” the bank said in its six-page letter. The move would allow the bank to focus on credit cards and personal loans, it said.
Wells Fargo CEO Charles Scharf has been forced to make tough decisions amid the pandemic, offloading assets and deposits and stepping back on some products due to restrictions imposed by the Federal Reserve. In 2018, the Fed banned Wells Fargo from growing its balance sheet until it fixes the compliance flaws revealed by the bank’s fake account scandal.
The capital cap ultimately cost the bank billions of dollars in lost revenue, based on the balance sheet growth of rivals including JPMorgan Chase and Bank of America over the past three years, analysts said.
It also affects Wells Fargo’s customers: Last year, the lender told staff it was shutting down all new lines of equity credit, The Washington City Times reported. Months later, the bank also withdrew from a segment of car loans.
In its final move, Wells Fargo warned customers that the account closures “could have an impact on your credit score,” according to an FAQ segment of the letter.
Another section of FAQs claimed that the account closures could not be verified or reversed: “We apologize for the inconvenience this line of credit closure will cause,” the bank said. “The account closure is final.”
“Simplify the offer”
Wells Fargo did not immediately answer questions about the possible role of the Fed asset cap in its latest move.
The bank issued this statement: “In an effort to simplify our product offering, we have made the decision to no longer offer personal lines of credit, as we believe we can better meet our customers’ lending needs through credit card and personal lines. loan products.”
Customers have been given 60 days’ notice that their accounts will be closed and any remaining balances will require regular minimum payments, the statement said.
The move is odd given the banking sector’s need to boost credit growth.
After a burst of commercial lending during the early days of the pandemic, lending growth was difficult to achieve. Companies have raised money in stocks and used debt issuance to terminate bank lines of credit, and consumers sitting at home had fewer reasons to use credit cards.
In fact, according to Barclays banking analyst Jason Goldberg, the major banks experienced the first aggregate loan decline in more than a decade last year. Of the four largest US banks, Wells Fargo saw the largest decline.
After banks saw borrowers holding up much better than they initially feared, the industry recently began marketing new credit cards with big sign-up bonuses in an effort to boost lending.
Making the switch
Wells Fargo does not disclose how many customers have used the lines of credit it is eliminating. It had $24.9 billion in loans in a category called “other consumers” in March, which was down 26% from a year earlier.
One client said the change is prompting him to switch banks after more than a decade at Wells Fargo. Tim Tomassi, a programmer in Portland, Oregon, said he used a personal line of credit tied to his checking account to avoid expensive overdrafts.
“It’s a little disturbing,” Tomassi said in a telephone interview. “They’re a big bank, and I’m a small person, and it feels like they make decisions for their profits and not for customers. A lot of people are in my position, they need a pillow every once in a while of a line of credit.”
Tomassi said he is considering opening an account with Ally or Chime, bankers who don’t charge overdrafts.
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