WTF Wells Fargo?

Earlier this month, Wells Fargo made the news… again.

You might remember in 2016 when Wells Fargo made headlines for the fake account scandal. If you don’t know this story, it’s a doozy. Basically, Wells Fargo employees meddled with Wells Fargo customers’ accounts without their consent.

These employees were going into people’s accounts and creating new checking accounts without authorization. Then, they moved people’s money from their old, pre-existing accounts, into these new accounts, again, all without authorization.

So what would happen is a customer would withdraw money from their account (the account they opened knowingly and willingly), thinking the money was there, safe and sound. Think about it. You may check your bank account on payday, see that you have $3,000 in your account, and feel absolutely relieved knowing that your $800 rent check will clear, no problem.

But because Wells Fargo had moved that money into a different account - BOOM - the customer would accidentally overdraft and have to pay a fee. And who would that fee go to? Wells Fargo. This happened to tons of people.

I’m not one to say I told you so... but if I was I would say: Again, NEVER, opt into overdraft protection, y’all. It will always bite you in the ass.

If you can believe it, it gets worse.

According to CNN, Wells Fargo employees also submitted applications for over 565,000 credit card accounts without their customers' knowledge or consent; and roughly 14,000 of those accounts incurred over $400,000 in fees, including annual fees, interest charges and overdraft-protection fees.

Not to mention, that’s over 565,000 people who had their credit checked, and therefore dinged, who weren’t planning on a sudden credit nosedive.

Why would Wells Fargo employees do this? Well, for a lot of those employees, there was a financial incentive to sell Wells Fargo products like the credit card. Wells Fargo leadership admitted that employees were opening credit cards without customer’s consent to meet sales quotas and even get bonuses.

This scandal ended with a gigantic overhaul where over 5,000 Wells Fargo employees were fired, Wells Fargo had to pay over $100 million in fines, plus an estimated $2.5 million in refunds to the customers they screwed over, and the then-CEO John Stumpf got slapped with a civil fine and was banned from the banking industry for life.

Stumpf getting fined totally makes sense... doesn't stump(f) me one bit (sorry, but that pun was RIGHT there).

So Stumpf getting fired feels like a bit of justice. But, there’s something about banning him from the banking industry which feels totally ridiculous to me. Like, if a landlord put the name of one of their tenants on the lease for five apartments the tenant wasn’t living in, that landlord should go to jail, right?

It seems like a silly slap on the wrist to say “...and, Mr. Stumpft, don’t go searching Indeed.com for any other banking gigs!”

It's basically like the finance industry going…

Which is a… cartoon response. Not the punishment for a CEO who costs tons of people financial hardship.

Anyway, Wells Fargo has been reeling from that scandal ever since. And reeling in terms of public opinion, for sure, but also from the millions of dollars in fines and refunds.

The fake account scandal was in September 2016. Yahoo Finance has this wonderful… and shocking… timeline that follows Wells Fargos’ next round of mistakes.

Let’s look at some of the highlights in 2018 alone:

• In April, Wells Fargo had to pay a 1 billion dollar settlement for charging people with car loans for insurance… without their knowledge or consent.

• In July, same deal.. Wells Fargo was fined for signing customers up for services like pet insurance… without reeeeally telling customers what was going on.

• In August, 400 Wells Fargo customers had their homes foreclosed upon because of, get this, a Wells Fargo computer glitch.

• Then, fast forward to 2020 and… covid hit. Which, if you can believe, even hurt the mega-institution Wells Fargo.

These financial drops in the rollercoaster that is Wells Fargo led up to the most recent loop-de-loop: the announcement that Wells Fargo is shutting down their credit program.

What does this mean... in theory?

Well, if you have a personal line of credit at Wells Fargo, your account will close in 60 days. Meaning, you will still owe what you owe, but you won’t be able to borrow more. And in terms of what you do owe, the interest rate will switch from a kinder variable interest (like it was) to a more challenging, fixed interest rate.

Now, what does this mean... in practice?

How will people be affected? Generally, if you have credit cards with high limits and low balances then you shouldn't be affected but if you have low limits and high balances it could hurt. Here’s how.

Remember, we want below a 30% utilization rate for a happy credit score. For a quick refresher - your utilization rate is essentially how much of your available credit you’re using.

Say you have two lines of credit open. One at Wells Fargo, with a $20,000 limit and an account with another bank with a $10,000 credit limit. So, between the two accounts, you have a total of $30,000 credit available to you, right?

And let’s say you’re rocking a utilization rate of exactly 33%, which would be $10,000 of your $30,000 limit. For easy math, let’s say you owe $5,000 at Wells Fargo and $5,000 at your other bank.

Here's the same info, but beautified:

Your Credit:

Your Utilization Score:

I know that’s a lot of numbers, but the bottom line is: as of right now, we’re in good shape and your credit score is probably looking pretty solid. And, props to you, because you probably worked really hard for that utilization score, so you’re feeling great. Kudos to you.

But when Wells Fargo decides to shut down their credit lines, your credit limit with Wells Fargo goes from $20,000 to $0, zilch, goose egg, nada, nothin’.

So when we look at your credit as a whole, you still have the $10,000 credit limit from the other bank... but that’s all she wrote.

So whereas before, the $10,000 you owed was a happy fraction of your overall $30,000 limit, you now have a total credit limit of $10,000… and you owe $10,000... meaning your utilization rate is now 100% which is, frankly, abysmal.

Here’s the proof, for you visual learners:

Remember, our accounts used to look like this:

But now, they look like this:

Which means our utilization score, will look like this:

Ugh.

Wells Fargo did acknowledge that this closure will hurt people’s credit scores… and just to be brutally honest with you, this will be a problem for a lot of people. Wells Fargo is a big bank who boasts that 70 million people use the bank, in some capacity. This credit branch of their business was a popular one - with people being able to sign up for credit lines of up to $100,000.

So, a lot of people are likely affected by this change… it’s frankly bullshit, and I wish credit companies would offer these people some leniency on their credit reports but, that probably won’t happen… no matter how much I shout it from the rooftops.

Realistically, you’re going to have to take matters into your own hands. Here are the four things I suggest:

Number One: If you want to check on your credit reports (not score), you now have FREE weekly access at annualcreditreport.com. It’s a good idea to see what kind of shape you’re in, so you know whether you can weather a hit.

Number Two: Revisit your spending plan and see if you can adjust your priorities. If you have been budgeting toward getting a new (used) car, would it be better if you put that chunk of change toward paying off your Wells Fargo debt? Probably.

Number Three: Practice some credit hygiene and do your best to get your utilization rate to 30-35%. In the example above, when your credit line went down to $10,000, in order to get that 33% utilization score back, you’re going to have to cut the $10,000 that you owe, down to $3,000.

Number Four: If you have credit lines open with other companies, call them and ask them to increase your credit limit. Every financial institution is watching this Walls Fargo saga, so hopefully they’ll be able to show you a little kindness and help with a boosted credit limit, which will help your utilization rate.

Going back to our trusty example, if your other credit account - the one with the $10,000 limit, can be boosted to a $30,000 limit, you’ll be at the 33% utilization score before chipping away any more at the $10,000 you owe. This could be a game changer for you, so revisit your negotiating notes and go to work.

If you have multiple accounts with Wells Fargo, like a checking account, and you’re thinking that Wells Fargo is about to implode and your money is going to evaporate... don’t freak out.

The FDIC insures up to $250,000 of the money in your Wells Fargo account, so if you’re working with a lower balance than that, the US government will make sure that your life savings doesn’t disappear. Phew. So if you’re thinking of reevaluating where you keep your money, put that on the back burner. Focus on protecting your credit score, then you can decide if Wells Fargo is worth the drama.

That's all the time we have for today! I’ll see you soon for your next Money Minute.

xo,

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