Wells Fargo has announced that it would close down every of its active personal line of credit – a famous credit product provided by the retail-concentrated Wall Street titan – a development that will likely anger many customers.
The revolving personal credit lines will be closed down in a couple of weeks, and the lines permit obligors to access between $3K and $100K. The product was launched as a means of consolidating higher-interest credit-card debt, finance home refurbishments or avert overdraft fees on checking accounts linked to the loans.
According to the statement, customers have been notified for 60 days that their loan accounts would be closed, and outstanding balances would need structured minimum payments.
CNBC reports that the development is the latest “difficult decision” that Wells CEO Charles Scharf, is encountering as he is being compelled to implement cutbacks to the banks’ business which is made possible by restrictions levied by the Federal Reserve some years back as punishment for the criminal scandals of the bank which include the egregious scandal where branch managers put in place credit lines for customers without approval, a scandal that enraged the public.
In a six-page letter, the bank said: “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.”
It said the development would allow the bank focus on credit cards and personal loans.
The unexpected shutdown will leave a lot of customers without what may be a censorious liquidity source. The worse thing is many will be punished for the decision, thereby making it extremely difficult for them to be availed credit from new sources. According to CNBC, obligors whose credit lines are forcefully closed will still be seeing their FICO ratings penalized like they had chosen to willingly close the credit line.
A Frequently Asked Question part of the letter states that with its current move, Wells Fargo cautioned customers that the account closures “may have an impact on your credit score.”
Another segment of the Frequently Asked Questions declared that the closure of accounts could neither be reviewed nor reversed. The bank said: “We apologize for the inconvenience this Line of Credit closure will cause. The account closure is final.”
In 2018, the Fed prohibited Wells Fargo from enlarging its balance sheet until the regulators of Central Bank resolve that the bank has fixed the flaws of its compliance that were uncovered by the counterfeit accounts scandal and other consumer abuses.
Ultimately, the asset cap has cost the bank billions of dollars in lost earnings, according to the balance sheet growth of competitors like JPMorgan Chase. Also, it has cost the mortgage titan its position as the highest mortgage lender in the United States.
The last time Wells slowed down on consumer credit was in the summer of 2020 when it stopped every new home equity credit line. At that time, many customers were not sure about the left over purchasing power of the consumer (though, trillions of dollars in federal stimulus money quickly cushioned that).
That is why this latest resolution’s timing is so strange. With Treasury yields dropping, pointing to unease in respect of the trajectory of the world’s post-pandemic recuperation, amid uncertainty about a possible Fed rate increase before 2021 ends, will the bank plainly engage in some shrewd risk-management while using the balance-sheet order of Fed as a justification? To be certain, the bank did not directly criticize the Fed asset cap, but it seems that would be the only other excuse, since banks make money by giving out loans.