Wells Fargo sent some customers into a frenzy when the financial giant announced that it will be closing all personal line-of-credit accounts within weeks.
The bank previously offered revolving credit lines from $3,000 to $100,000, which were promoted as a way to help customers consolidate credit card debt or finance home renovations. Consumer advocates are warning this move could impact customers’ credit scores.
A personal line of credit is an unsecured loan, meaning it’s not backed by collateral. The sums tend to be modest and often used for unplanned expenses, said Greg McBride, a chief financial analyst at Bankrate, in a CNBC interview.
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 available credit. The lower your debt-to-credit ratio, the better your credit score.
“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.
Wells Fargo acknowledged the negative effect account closures might have, “especially when customer credit may be impacted.”
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Sen. Elizabeth Warren, a frequent critic of the banking industry, blasted Wells Fargo’s decision to pull back the credit lines.
“Not a single @WellsFargo customer should see their credit score suffer just because their bank is restructuring after years of scams and incompetence,” Warren tweeted. “Sending out a warning notice simply isn’t good enough. Wells Fargo needs to make this right.”
Warren is the former founder and director of the Consumer Financial Protection Bureau.
For more than 10 years, Wells Fargo employees created millions of fake accounts in customers’ names to meet unreasonably high sales goals set by the bank. Management knew about it , turned a blind eye to the practice and minimized the issue to the company’s board, , Wells Fargo agreed in a $3 billion settlement with the government.
The settlement “barely dents” the bank’s profits, said Rep. Maxine Waters (D-CA 43rd District). Waters called for Elizabeth “Betsy” Duke, chairwoman of the Wells Fargo board of directors, to resign for her leadership decisions.
Wells Fargo has given customers a 60-day notice that their accounts will be shuttered, and remaining balances will require regular minimum payments at a fixed rate, CNBC reported.