Last month, CNET reported that Wells Fargo wasand would stop offering the service to customers. Weeks after facing public scrutiny from customers and consumer advocates, the bank announced a reversal of its decision.
“Based on feedback from our clients (thank you for providing feedback!) We are adjusting our approach,” John Rasmussen, executive vice president overseeing Wells Fargo’s personal loan business, wrote to active clients in an email viewed by Bloombergthe outlet reported Wednesday. “The terms of your account will not change.”
Why did Wells Fargo reverse its decision?
Wells Fargo did not immediately respond to CNET’s request for comment. Earlier, a Wells Fargo spokesperson said the bank’s decision to close personal lines of credit came down to streamlining its product offerings to “better meet our customers’ borrowing needs through credit card and personal loan products. “.
The bank has had a tumultuous years of federal investigation. In late 2017, the Federal Reserve placed 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 loan and mortgage commissions. In February 2020, the bank agreed to pay a $ 3 billion settlement to the U.S. Securities and Exchange Commission and the Department of Justice, and the asset cap remains active until compliance issues related to theare fully addressed.
In the midst of the 2020 pandemic and due to limitations imposed by the Federal Reserve, the bank halted new home equity lines of credit and announced that it would no longer provide auto loans to most independent car dealers. CNBC reported.
In February this year, the Federal Reserve approved Wells Fargo’s proposal to review internal governance and risk management practices, bringing the bank one step closer to eliminating Federal Reserve sanctions. When asked if the asset limit was a factor in stopping offering lines of credit, a Wells Fargo representative said the two problems were unrelated.
Why were consumer advocates opposed to credit account closings?
In its earlier statement announcing account closings, Wells Fargo acknowledged the downside, “especially when customer credit may suffer.” Consumer advocates disagreed with the move and its potential impact on clients’ financial stability.
“Not a single @WellsFargo customer should see their credit score suffer just because their bank is restructuring after years of scams and incompetence,” said Senator Elizabeth Warren. tweeted July 8th. “Sending a warning notice is simply not enough; Wells Fargo must correct this.”
How do revolving lines of credit affect my credit score?
Closing a credit account canby 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:
- Account A: $ 5,000 balance, $ 10,000 limit
- Account B: $ 2,000 balance, $ 10,000 limit
- Account C: $ 3,000 balance, $ 10,000 limit
The total debt above ($ 10,000) divided by the total credit limit ($ 30,000) equals a utilization rate of 33%. Now suppose the bank closes account C. When this happens, your total credit limit automatically drops to $ 20,000 and your credit utilization ratio increases to 50%.
While there is not much you can do regarding your bank’s decision to close your account (or not), may safeguard other items on your credit reports. According to TransUnion, one of the top three credit reporting agencies in the US, the best way to minimize credit damage is to keep old accounts open and active to ensure that the duration of your credit is accurately represented. It’s also a good idea to charge no more than 35% of your total limit on each credit account.
Originally posted last month. Updated with new information.