What's Going On With Wells Fargo’s Personal Credit Lines?

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Normally, a bank making changes to one of its products wouldn’t unleash a wave of controversy.

But that’s just what Wells Fargo accomplished last week, after it sent a letter to customers informing them that the bank planned to close all of its personal lines of credit in the coming weeks—and that the customers’ credit scores might suffer in the process.

Key Takeaways

  • Wells Fargo announced last week it would soon close all personal lines of credit, which are different from credit cards and personal loans.
  • The company informed customers that the account closures could hurt their credit scores, which drew criticism.
  • The bank said the move would not affect any other products, including credit cards.

The announcement—and the admission that the move could hurt consumers’ credit scores—drew lots of attention, including from Democratic Sen. Elizabeth Warren of Massachusetts, a frequent critic of the bank.

“Not a single Wells Fargo customer should see their credit score suffer just because their bank is restructuring after years of scams and incompetence,” Warren wrote on Twitter July 8. “Sending out a warning notice simply isn’t good enough – Wells Fargo needs to make this right.”

Google searches for terms like “personal line of credit” and “Wells Fargo closing credit cards” soared, as people tried to find answers about the news and what it meant for them. 

If you’re confused about how the decision affects you, or you’re simply curious, here are the answers to some of the most-searched questions on Google:

What is a personal line of credit?

Personal lines of credit work like a mix between a credit card and a personal loan. Account holders receive a set amount of revolving credit, just as they would with a credit card. Instead of buying things with the credit, however, they use the account to get cash, as they would with a loan. 

With a personal line of credit, the borrower draws on the account to get cash as needed, and they can keep borrowing as long as they haven’t reached their credit limit. That’s unlike an installment loan, like a personal loan or a mortgage, where the borrower receives the full amount of cash available in one lump sum. 

Payments work as they would with a credit card: The borrower must make minimum payments that vary depending on the size of the balance. The payment is usually a percentage of the outstanding balance plus interest. That’s different from an installment loan, which requires a fixed monthly payment that doesn’t change until the loan is repaid in full. 

Banks that offer personal lines of credit advertise them as a way to pay for college tuition or home improvements, or to consolidate other, higher-interest rate debt. They generally offer a larger credit limit than credit cards, but you typically can get one only from a bank where you already have a checking account, and you may have to pay a fee every time you use the account. You might also need to use special checks or fund transfers to get your cash.

Why is Wells Fargo closing personal lines of credit?

Wells Fargo said it’s closing the accounts because it wants to “simplify” its product offerings.

Although Wells Fargo informed customers of its decision only recently, its plans came long before this month. First, in May 2020, Wells Fargo suspended personal lines of credit, then it decided last fall to discontinue them completely. Wells Fargo declined to say how many customers will be affected by the closures or why it waited until now to notify customers.

“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 statement from Wells Fargo said. “We realize change can be inconvenient, especially when customer credit may be impacted.”

It’s unclear just how many people will be affected, but the majority of the bank’s personal lending customers have a loan and not personal lines of credit, according to Manuel Venegas, a bank spokesperson.

Does the account closing affect my credit score?

It could.

Your credit score is determined in part by comparing how much outstanding revolving debt you have to your total credit limit across all revolving accounts in what’s known as a credit utilization ratio. The lower the ratio, the better for your credit score.

When you close a credit account—or the bank closes it for you, as in the Wells Fargo case—the amount of credit available to you drops, raising that ratio. And that could hurt your credit score.

“We included the information about credit scores in the customer letter because we know that with the closure of any type of financial product, a customer’s credit may be impacted,” Wells Fargo said in a statement.

Is Wells Fargo closing credit cards or mortgage accounts?

No. Wells Fargo will continue to offer credit cards and mortgages, as well as personal loans, a statement from the bank said. No credit products other than personal lines of credit are affected, Venegas said.

What happens if I have a balance?

Wells Fargo will send affected customers a notice that it intends to close their account 60 days before taking action. The bank then will send reminders 30 days before closing the account and again at the time of closing.

Customers will have to pay off any remaining balance at a fixed rate assigned by the bank, with minimum payments of no more than 1% of the outstanding total plus interest. Any annual fees paid in the 12 months before the account’s closure date will be refunded.

The bank also will direct customers who have had their accounts closed to other Wells Fargo credit products.

Have a question, comment, or story to share? You can reach Rob at ranthes@thebalance.com.

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