Last month, CNET reported that Wells Fargo wasand would no longer offer the service to customers. Weeks after being subjected to public scrutiny by customers and consumer advocates, the bank announced a change in its decision.
“Based on feedback from our customers (thank you if you provided feedback!), We are adjusting our approach,” John Rasmussen, Executive Vice President of Wells Fargo’s personal lending business, wrote to active customers in an email seen by Bloomberg, reported outlet Wednesday. “The terms of your account will not change.”
Why did Wells Fargo change its mind?
Wells Fargo did not immediately respond to CNET’s request for comment. Earlier, a spokesman for Wells Fargo said the bank’s decision to close personal credit lines came to simplify its product offering to “better meet our customers’ borrowing needs through credit card and personal loan products.”
The bank has had a tumultuous few years of federal investigation. At the end of 2017, the Federal Reserve introduced a ceiling on the bank’s assets – which essentially prevented it from increasing its balance sheet. The move came after an investigation revealed that Wells Fargo employees had opened checking and savings accounts without customers’ knowledge. Account holders were also forced to pay millions in credit and mortgage fees. In February 2020, the bank agreed to pay a $ 3 billion settlement to the U.S. Securities and Exchange Commission and the Department of Justice, and the asset ceiling remains active until compliance issues are linked tois completely treated.
In the midst of the 2020 pandemic and due to restrictions set by the Federal Reserve, the bank stopped new home loan loans, announcing that it would no longer offer auto loans to most independent car dealers, CNBC reported.
In February this year, the Federal Reserve approved Wells Fargo’s proposal to review internal risk management and governance practices, bringing the bank one step closer to removing Federal Reserve sanctions. On the question of whether the asset ceiling was a factor in no longer offering lines of credit, a Wells Fargo representative said the two issues were unrelated.
Why do consumer advocates oppose closing credit accounts?
In its earlier statement announcing account closures, Wells Fargo acknowledged the inconvenience, “especially when the customer’s credit may be affected.” Consumer advocates took issue with the move and its potential impact on customers’ financial stability.
“Not a single @WellsFargo customer should see their credit rating suffer just because their bank is restructuring after years of fraud and incompetence,” said Senator Elizabeth Warren tweeted July 8 “Issuing a warning is simply not good enough – Wells Fargo must do this right.”
How do rotating lines of credit affect my credit rating?
Closing a credit account canby affecting the length of your credit history, especially if the account has been open for several years. It can also affect your credit utilization rate, the amount of debt you owe relative to your total credit limit. The lower your debt-to-credit ratio, the better your credit score. Let us e.g. Say you have three credit accounts:
- Account A: $ 5000 balance, $ 10,000 limit
- Account B: $ 2,000 balance, $ 10,000 limit
- Account C: $ 3,000 balance, $ 10,000 limit
The total debt over ($ 10,000) divided by the total credit limit ($ 30,000) corresponds to a utilization rate of 33%. Let us now assume that account C is closed by the bank. When this happens, your total credit limit automatically drops to $ 20,000 and your credit utilization ratio rises to 50%.
While there is not much you can do about your bank’s decision to close your account (or not), you are able to Protect other items in your credit reports. According to TransUnion, one of the three major US credit reporting agencies, the best way to minimize credit damage is to keep older accounts open and active to ensure that your credit line is accurately represented. It is also a good idea to charge no more than 35% of your total limit on each credit account.
Originally released last month. Updated with new information.
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