The bank warns customers that the account closures "may have an impact" on their credit scores.
Wells Fargo told customers that it plans to shutter all lines of personal credit in the coming weeks, CNBC reported on Thursday. The bank reportedly sent a letter to customers saying it'll no longer offer the lines of credit, which range from $3,000 to $100,000 and serve to help fund things like home repairs and renovations or to consolidate credit card debt.
The bank's letter to customers warned that account closures "may have an impact on your credit score," according to CNBC. Current customers should expect to receive 60 days' notice of the account closures and remaining balances will need to be paid off with minimum payments at a fixed rate.
Read more: Wells Fargo is closing your personal line of credit account. Here's what happens next
"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 Wells Fargo spokesperson said.
"We realize change can be inconvenient, especially when customer credit may be impacted. We are providing a 60-day notice period with a series of reminders before closure, and are committed to helping each customer find a credit solution that fits their needs."
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Wells Fargo is closing your personal line of credit account. Here's what happens next
Why the bank says it plans to "simplify" offerings, and what that means for customers.
Wells Fargo is shutting down all existing personal lines of credit in the coming weeks and will no longer offer the product to customers. The bank previously offered revolving credit lines from $3,000 to $100,000, which were marketed as a way for customers to finance home renovations or consolidate credit card debts. The news sparked outrage among consumers and advocates after Wells Fargo warned that the change could impact customers' 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.
Why is Wells Fargo shuttering these accounts?
"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.
How do I repay my remaining balance?
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.
How will the change affect my credit?
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.
I still need access to funds. What should I do?
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.
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