Money Rehab with Nicole Lapin - WTF is Up with Wells Fargo?! And How to Protect Yourself

Episode Date: July 27, 2021

You may have seen the headlines that Wells Fargo is shutting down their credit program… which could cause major issues for members. Nicole breaks down what’s happening and how to protect yourself from a credit score hit. Learn more about your ad-choices at https://www.iheartpodcastnetwork.comSee omnystudio.com/listener for privacy information.

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Well, it doesn't. Charge for wasting our time. I will take a check. Like an old school check. You recognize her from anchoring on CNN, CNBC, and Bloomberg. The only financial expert you don't need a dictionary to understand. Nicole Lappin. Earlier this month, Wells Fargo made news yet again.

You might remember in 2016 when Wells Fargo made headlines for the fake account scandal. If you don't know the 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 legit opened knowingly and willingly, thinking the money was there, safe and sound. I mean, think about it. You may check your bank account on payday and see that

you have $3,000 in your account and feel absolutely relieved knowing that your $800 rent check is going to 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, of course. This happened to tons of people. I'm not one to say I told you so, but if I was, I would say, again, guys, never opt into overdraft protection. It will bite y'all in the ass. If you can believe it, it gets worse. According to CNN, Wells Fargo employees also submitted applications for more than 565,000

credit card accounts without their customers' knowledge or consent. And roughly 14,000 of those accounts incurred more than $400,000 in fees, including annual fees, interest charges, and overdraft protection fees. Not to mention, that's more than 565,000 people who have 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 products like Wells Fargo credit cards. Wells Fargo leadership admitted that employees were opening credit cards without their customers' consent to meet sales quotas and even get bonuses. This scandal ended

with a gigantic overhaul where more than 5,000 Wells Fargo employees were fired. Wells Fargo had to pay more than $100 million in fines, plus an estimated $2.5 million in refunds to 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. It doesn't stump me at all, and it feels like a little 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, the landlord should go to jail, not just get banned from landlording, right? It feels like a slap on the wrist to be like, and Mr. Stumpf, don't go searching indeed.com for any other banking gigs. It basically feels like the finance industry saying, and stay out of here, which is the response deli owners gives twerpy teens who steal penny candy. It shouldn't be the same punishment for a CEO who cost 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 and more legal snafus. So the fake account scandal was in September 2016. Yahoo Finance has this

wonderful and shocking timeline that follows Wells Fargo's next round of mistakes. Let's take a look at some of the highlights or lowlights in 2018 alone. Hold on to your wallets, boys and girls. Money Rehab will be right back. Now for some more Money Rehab. In April, Wells Fargo had to pay a 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 really 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 roller coaster that is Wells Fargo led up to the most recent loop-de-loop, the announcement that Wells Fargo is shutting down their personal lines of credit. What does that mean? In theory, well, if you had a personal line of credit at Wells Fargo, your account will close in 60 days, meaning you 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 the kinder variable interest rate, which is fluctuating how it used to be, to a more challenging fixed interest rate. Now, what does that mean in practice? How will people be affected? Generally, if you have credit cards with high limits and low balances, your credit score shouldn't really be affected. But if you have low limits and high balances, it could hurt. Remember, we want a 35%-ish 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 one at another bank with a $10,000 credit limit. So between the two accounts, you now have a total of $30,000 of credit available to you, right?

And let's say you're rocking a utilization rate of exactly 30%, which would be $10,000. For easy math, let's say you owe $5,000 of that at Wells and $5,000 to the other bank. I know that's a lot of numbers, but the bottom line is, as of right now, you're in good shape and your credit score is probably looking pretty solid because of it. So props to you because you probably worked really hard for a utilization score like that. So you're feeling great and kudos. But then Wells Fargo decides to shut down their credit lines. Your credit limit with Wells Fargo goes from 20 grand to zero, zilch, goose egg, nada, nothing. So when we then look at your credit as a whole, you still have a $10,000 credit limit from that 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. Wells Fargo did acknowledge that this closure will potentially hurt people's credit scores. And just to be brutally honest with you, this will be a harsh reality for a lot of people. to be brutally honest with you, this will be a harsh reality 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 up to $100,000. So a lot of people are likely affected by this change, which is frankly bullshit. And I wish the credit reporting agencies would offer these folks some leniency on their credit reports, but that probably won't happen, no matter how much

I shout it from the rooftops, no matter how many times Elizabeth Warren posts a sassy tweet. Realistically, you're going to have to take matters into your own hands. Here are four things I would suggest. Number one, if you want to check your credit reports, not score though, 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 or not you can weather a hit. Number two, revisit your spending goals and see if you can adjust your priorities. If you've been budgeting toward getting a new or hopefully used car, would it be better for you to put a chunk of change toward paying off your Wells Fargo debt instead? Probably. Number three, practice some credit hygiene and do your best to get your utilization rate to

about 30, 35 percent. In the example we just talked about, when your credit line went down to $10,000, to get that 30% utilization score, you're going to have to cut the $10,000 that you owe down to $3,000 or get more credit. 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 Wells 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 trustee example, if your other credit account, the one with 10 grand, can be boosted to a 30 grand limit,

you'll be at a 30% utilization score before chipping away at any more of the 10 grand you owe. This could be a game changer for you. So revisit your money rehab negotiating notes and go to work. For today's tip, you can take straight to the bank. If you have multiple accounts with Wells Fargo, like a checking account, and you're thinking that Wells Fargo is going to implode and your money is going to evaporate, don't freak out. The FDIC insures up to $250,000 of your money in your Wells Fargo account. So if you're working with a lower balance than that, the U.S. government will make sure that your life savings doesn't disappear. But if you're still thinking of reevaluating where you keep your money, and I think you should, hold on to your Wells Fargo workhorses.

Focus on protecting your credit score now. Then you can decide if Wells is worth the drama. can decide if Wells is worth the drama. Money Rehab is a production of iHeartMedia. I'm your host, Nicole Lappin. Our producers are Morgan Lavoie and Catherine Law. Money Rehab is edited and engineered by Brandon Dickert with help from Josh Fisher. Executive producers are Mangash Hatikadur and Will Pearson. Huge thanks to the OG Money Rehab supervising producer, Michelle Lanz, for her pre-production and development work. And as always, thanks to you for finally investing in yourself so that you can get it together

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