Wells Fargo Plans to Stop Offering Personal Lines of Credit
Comment of the Day

July 08 2021

Commentary by Eoin Treacy

Wells Fargo Plans to Stop Offering Personal Lines of Credit

This article from Bloomberg may be of interest to subscribers. Here is a section:

Wells Fargo & Co. said it’s shutting down all existing personal lines of credit and will no longer offer the product to its customers.

“In an effort to simplify our product offerings, we’ve made the decision 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,” the bank said in an emailed statement. The firm has been providing existing customers with 60-day notices their accounts will be closed, with a fixed rate and minimum payment for their remaining balances, it said.

Under Chief Executive Officer Charlie Scharf, Wells Fargo has been exiting businesses deemed inessential with the goal of simplifying operations and improving profitability following years of scandals. Earlier this year, the bank agreed to sell its asset-management and corporate-trust units, and last year it agreed to divest a $10 billion private student-loan book.

Eoin Treacy's view

Personal credit lines are often used to purchase expensive items like vacation homes, boats or planes. They are often collateralised with stock portfolios. The most public user of these kinds of vehicles is Elon Musk who has borrowed significant sums against the value of his Tesla shares. It has also been a popular vehicle in China where entrepreneurs have staked their holdings in order to source additional funds.

It has been an extremely popular revenue raising mechanism for owners of highly appreciated assets in the USA. People who wish to spend, but do not want to incur the tax implication of selling, prefer borrowing the money and paying the interest. There has been a boom in this kind of lending over the last few years.

The fact the Wells Fargo is pulling back from the practise suggests they are wary of how large the sector has become and are potentially worried about the valuations of the assets borrowed against.   

Personal credit lines have been an important conduit for liquidity and helped to reinforce the consistency of the trend over last decade. One bank pulling back from this practice is not going to derail the trend but it is an important piece of plumbing to monitor.

Back to top

You need to be logged in to comment.

New members registration