Wells Fargo bank has been making headlines again. This time for its most recent stunt; cutting off all personal credit lines.
This follows them almost instantly ending home equity loans when pandemic restrictions and lockdowns hit in 2020. Customers and politicians are all up in arms about the impact this could have.
Yet, it is just another in a long chain of PR blunders, if not malicious stunts the bank has been accused of, or had to settle. That ranges from the robo signing and foreclosure scandal around 2008, to questionable forbearance practices on mortgages when COVID hit, to more recently having been found out that it created millions of fake accounts using its own customers’ identities to prop up its stock.
Here’s what you need to know about the latest issue…
Cutting Credit Lines
Wells Fargo was thrown into the news again recently when reporters discovered the bank’s customers have been receiving 60 day notices to cancel their personal credit lines.
The bank has admitted it has decided to cut off all of these lines, with no exceptions. Even though it also acknowledges it could have a serious negative impact on these customers.
Scrambling To Pay The Bills
Having a big credit line unexpectedly called due can be stressful. It may be even worse for those who didn’t see it coming, and who were counting on this available credit to float their bills, cover mortgage payments, or fund cash flow gaps in their businesses.
This is something which should have been foreseen after 2008. It is the same playbook creditors used then, and it didn’t play out very well for consumers.
Fortunately, other banks and lenders are extending various forms of credit, and some are reporting to the Fed that they have been making it easier to get some forms of credit.
Auto dealers are again offering 0% interest deals and no payments for months. Credit card companies are filling mailboxes with offers.
If you or any of your customers have been caught off guard by this move, then refinancing or transferring that line to another lender may be an option.
What may be even more serious is the impact this will have on credit. Cancelling credit lines like this can immediately impact credit utilization on a credit report. It shows you are maxed out. It could easily throw some from a 700 credit score to the 500s overnight.
Then it snowballs. Other creditors will see this decline in credit score and will want to cut those lines of credit, or raise interest rates to high double digits, along with supersizing minimum payments.
This can make it hard for even those who have been super careful with their credit to find new credit. It may also temporarily impact assets linked to credit scores. Although this may also create opportunities for acquiring assets and debt backed by responsible borrowers at discounts.
This is all a reminder of how so important who you have your money and mortgages with is. Without good intent and the ability to deliver on it, issues like these will arise eventually.
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