Wells Fargo to Discontinue Personal Lines of Credit and wind down its existing portfolio in the next few weeks. The third-biggest U.S. bank by asset size sent notice to existing clients and informed them that their credit lines would be closed.
What’s a Personal Line of Credit?
A personal Line of Credit offers easy access to a set amount of funds at a low fixed interest rate. The rate can be below 2.5% with no origination, maintenance, or prepayment fees.
The borrower can access the credit line up to the approved amount for home improvements, paying off debt, or unexpected expenses. The credit limit is available to the client again once she pays off the debt.
Personal Lines of Credit is a revolving account functioning like credit, but it comes with a fixed interest rate as an installment account.
Why Does Wells Fargo Decide to Discontinue Accounts?
In 2016, regulators discovered that Wells Fargo frontline workers and personal bankers opened millions of fake accounts to meet the company’s ruthless quotas. As a result of the egregious fraud, the Federal Reserve required the banks to address their compliance issues before growing their loan portfolio.
Wells Fargo wants to focus on more profitable loan products such as credit cards and personal loans. They are scaling those two units at the expense of clients who hold personal lines of credit.
Will Wells Fargo’s Decision to Discontinue Lines of Credit Hurt Existing Clients?
Yes, it will. The Wells Fargo personal line of credit offers clients $3,000 to $100,000 in revolving credit lines. Closing those accounts will most likely increase clients’ credit utilization ratio, which in return will have severe impacts on their credit score.
Existing Wells Fargo clients who hold personal lines of credit need to reach out to the bank and explore their options. Clients with an available limit of $25,000 or lower might be able to convert their line of credit with an unsecured credit card with the same credit limit.
Clients need to do their due diligence if that option is presented to them because credit cards are a lot more expensive than personal lines of credit.
