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Wells Fargo screws consumers. Again. Bye-bye credit ratings…

Written By | Jul 13, 2021
Wells Fargo, credit ratings

Public domain cartoon, reworded to suit current times.

WASHINGTON — Wells Fargo announced this past Thursday that it’s shutting down all of its existing personal lines of credit — a popular product offered by the retail-focused Wall Street giant. This sudden move, launched out of the blue, has already infuriated legions of Wells customers. The revolving credit lines Wells decided to shut down in the coming weeks typically allow users borrow $3K to $100K. The bank pitched them as a way for consumers to consolidate higher-interest credit-card debt, pay for home renovations or avoid overdraft fees on linked  checking accounts. But cut off from their lines of credit, Wells’ customers will watch their credit ratings tank as available credit gets revised by Equifax and friends.

There goes your credit rating…

Wells Fargo provided customers with a 60-day notice that the bank would terminate their accounts. Remaining outstanding balances now require mandatory regular minimum payments, according to the bank’s statement to its customers. Anyone familiar with how credit ratings work knows what comes next. That’s right, a modest to substantial downgrade of your credit rating. Through no fault of your own.

According to CNBC, this abrupt, consumer-unfriendly action becomes the latest “difficult decision” facing Wells Fargo CEO Charlie Scharf. The Federal Reserve continues pushing Scharf to make further cutbacks to the banks’ consumer business, a result of restrictions put in place years ago. Congress imposed them in legislation passed in the aftermath of the Great Recession.

Virtue rewarded?

Moving up the financial food chain, it’s interesting to see that the nation’s central bank has finally decided to punish at least one major commercial / consumer bank for a scandal damaging to average consumers. Namely, the aforementioned Wells scandal, in which branch managers opened credit lines for customers without permission. That’s what precipitated the current, ongoing crackdown on Wells Fargo and its (now mostly former?) consumer banking practices.

“‘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,’ the bank said in the six-page letter. The move would let the bank focus on credit cards and personal loans, it said,” according to CNBC.

When is prudence imprudent?

Yippee! I’m sure those screwed retail customers all applaud Wells’ prudence. Just the way they applauded their own earlier bout with financial ruination back in 2008-2010. As those who lived through the Great Recession know, what seemed like the entire lending industry had embraced pure greed from the early oughties. Year after year, they processed thousands of ruinous liar loans for housing. These liar-loans were based on little or no paperwork or background checks to thousands of hapless individuals. Unsurprisingly, a great many of those loans, given to families that obviously couldn’t afford them, went into default, crashing financial institutions right and left, endangering the entire banking industry. The horrible domino effect crashed the entire US economy, big time. Along with the unfortunates who took on those liar loans and lost their homes to foreclosure by the tens of thousands.

Where are the perp walks for greedy bank officers who damage retail customers with impunity?

Intriguingly, no one to my knowledge ever did a perp walk for the ensuing Great Recession. And similarly, no one at Wells has done time for Wells’ more recent consumer scandal. At least not yet. We really have come to accept a two-tier justice system in this country. Both the rich and today’s Marxist terrorists that the rich routinely fund never see the inside of a courthouse. But express mostly peaceful support for a certain political party or a well-known former US Chief Executive and you’ll rot in solitary while some government flunkie tries to invent charges after the fact.

Consumers screwed, with no way out for them

Meanwhile, ZeroHedge explains the latest Wells-caused consumer woes, like the big one we noted above. (Bold text via this columnist.)

“The sudden [loan account] closures will leave many customers without what may be a critical source of liquidity. What’s worse, many will be penalized for the decision, making it more difficult for them to receive credit from a new source. Per CNBC, those whose credit lines are involuntarily closed will still see their FICO scores penalized as if they had elected to close the credit line willingly.

“‘With its latest move, Wells Fargo warned customers that the account closures “may have an impact on your credit score,’ according to a Frequently Asked Questions segment of the letter.”

“Another part of the FAQ asserted that the account closures couldn’t be reviewed or reversed: ‘We apologize for the inconvenience this Line of Credit closure will cause,’ the bank said. ‘The account closure is final.’”

In other words, affected customers are screwed. And don’t bother calling Wells to argue about what the bank’s high-handed move will do to your credit rating. They won’t listen. Sorry.

Wells Fargo gets to damage credit ratings without consequences. What about yours?

Personally, I love that throwaway line about how the cancellation of these accounts “may have an impact on your credit score.” It damn well WILL have an impact on your credit score.

On a personal note, I have been saddled with several Wells real estate loans for many years, including the darkest days of the Great Recession. Bad timing on these loans. The bad timing was my fault. But what happened next was — and continues to be — on Wells and its lousy back office personnel.

As the lending situation eased when the worst of the Great Recession had passed, my fun with Wells Fargo had just begun. Having never defaulted on any of these loans, I was nonetheless never able to refinance them. Initially, Wells typically screwed around with my refinincing applications until they timed out. Then they told me that the houses had been reappraised lower (like all houses), I didn’t qualify for a new loan at a much lower rate, which would have seriously helped out my cash flow situation. And I didn’t qualify even though I’d been paying their now outrageously overpriced loans on time every month and without fail for a decade.

No surprises

Naturally, when I heard about Wells’ latest consumer-hostile decision last week, I took it in stride. Wells’ latest effective screwing of their smaller customers’ finances and (eventually) credit ratings — which, I guarantee, will decline this very month after the credit bureaus factor in this decision — seems like business as usual to me. And once again, Wells personnel will never even see the inside of a courtroom. What the hell are Federal regulators for, anyway?

Soapbox speech and personal animosity concluded.

Now back to ZeroHedge, which, as always, offers even more damning info on Wells Fargo’s predatory banking practices.

“The last time Wells curtailed consumer credit was back in the summer of 2020 when it halted all new home equity lines of credit. At the time, many were unsure about the remaining purchasing power of the consumer (of course, trillions of dollars in federal stimulus money soon took care of that).

“Which is why the timing of this latest decision is so curious. As Treasury yields drop, signaling unease about the trajectory of the global post-pandemic recovery, amid nervousness about a potential Fed rate hike before the end of next year, is the bank simply engaging in some prudent risk-management while using the Fed’s balance-sheet order as an excuse? To be sure, the bank didn’t directly blame the Fed asset cap, but that would seemingly be the only other justification, since giving out loans is how banks make money.”

Fair enough. But I’d add one more possibility. Wells officials and “stakeholders” (i.e., stockholders and favored mega-corporate and government customers) don’t care what Wells or any other bank inflicts on their faithful customers. They want to see ever-improving bottom lines. So remember: They’re the ones that count. Not you.

Always consider this whenever you leave yourselves and your life savings and investments open to any bank’s tender mercies. Unfair judgment? Maybe. But how fair is the crap that Wells and other financial institutions inflict on customers in order to cover up correct the costly mistakes made by management?

Terry Ponick

Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Senior Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17