Wells Fargo is ending a popular consumer credit product that is upsetting some of its customers, CNBC has learned.
The bank will close all existing personal credit lines in the coming weeks and will no longer offer the product, as customer letters verified by CNBC show.
The revolving lines of credit, which typically allow users to borrow $ 3,000 to $ 100,000, have been suggested 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 credit accounts and to close all existing accounts,” said the bank’s six-page letter. The move would allow the bank to focus on credit cards and personal loans, it said.
A man walks past a Wells Fargo Bank branch on a rainy Washington morning.
Gary Cameron | Reuters
Charles Scharf, Wells Fargo CEO, was forced to make tough decisions during the coronavirus pandemic, offloading assets and deposits, and stepping down from some products due to Federal Reserve restrictions. In 2018, the Fed banned Wells Fargo from expanding its balance sheet until it addressed compliance deficiencies exposed by the bank’s fake accounts scandal.
The asset ceiling ultimately cost the bank billions of dollars in lost profits, based on balance sheet growth for rivals like JPMorgan Chase and Bank of America over the past three years, analysts said.
It has also affected Wells Fargo’s customers: last year, the lender informed its employees that it was stopping all new lines of credit for home equity loans, CNBC reported. Months later, the bank also pulled out of a segment of the auto loan business.
In its latest move, Wells Fargo warned customers that account closures “may have an impact on your creditworthiness,” according to a “Frequently Asked Questions” section of the letter.
Another part of the FAQ alleged that the account closures could not be verified or reversed: “We apologize for the inconvenience this line of credit brings,” the bank said. “The account closure is final.”
A frequent critic of the banking sector, Senator Elizabeth Warren condemned Wells Fargo’s decision to withdraw the credit lines.
Wells Fargo did not directly answer questions about what role, if any, the Fed asset ceiling played in their latest move.
The bank said: “In order to simplify our product offering, we have decided to stop offering personal credit lines as we believe that we can better meet our customers’ credit needs through credit card and personal loan products.” . “
Following the publication of this article, a Wells Fargo spokesman made additional remarks: “We know that change can be inconvenient, especially if customers’ creditworthiness could be compromised,” the bank said, adding that it “has an obligation to every customer to help find a loan solution that suits their needs. “
Customers have been given 60-day notice that their accounts will be closed and any remaining balances will require regular minimum payments at a fixed rate, the statement said. At the time of their offer, the credit lines had variable interest rates of between 9.5% and 21%.
This move is strange given the banking industry’s need to boost credit growth.
After a commercial lending outbreak in the early days of the pandemic, loan growth has been difficult to come by. Businesses have used funds from stocks and debt to liquidate bank lines of credit, and stuck home consumers have had fewer reasons to use credit cards.
According to Barclays banking analyst Jason Goldberg, major banks saw their first cumulative credit decline in more than a decade last year. Of the four largest US banks, Wells Fargo saw the largest decline.
After banks saw that borrowers were doing far better than they initially feared, the industry recently began marketing new credit cards with high sign-up bonuses to boost lending.
Make the switch
Wells Fargo does not disclose how many customers have used the canceled lines of credit. It had $ 24.9 billion in credit in a category called “other consumers” in March, down 26% from the same period last year.
One customer said the change made him switch banks after more than a decade at Wells Fargo. Tim Tomassi, a programmer from Portland, Oregon, said he used a personal line of credit tied to his checking account to avoid expensive overdraft fees.
“It’s a bit annoying,” said Tomassi in a telephone interview. “You’re a big bank and I’m a little person and it feels like they make decisions for their bottom line rather than customers. A lot of people are in my position, they need a cushion every time.” off a line of credit for a while. “
Tomassi said he was considering opening an account with Ally or Chime, banks that don’t charge overdraft fees.
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