News

Major Bank Puts the Kibosh on Personal Lines of Credit

Here's an excerpt from a July 8 CNBC article titled "Wells Fargo tells customers it's shuttering all personal lines of credit":

Wells Fargo is ending a popular consumer lending product, angering some of its customers, CNBC has learned.

The bank is shutting down all existing personal lines of credit in coming weeks and has stopped offering the product, according to customer letters reviewed by CNBC.

The revolving credit lines, which typically let users borrow $3,000 to $100,000, were pitched as a way to consolidate higher-interest credit card debt, pay for home renovations or avoid overdraft fees on linked checking accounts.

"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...

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."

Is Well Fargo's action indicative of a developing deflationary psychology?

The 2020 edition of Robert Prechter's Conquer the Crash has this to say:

No tree grows to the sky. No shared mental state, including confidence, holds forever. The exceptional volume of credit extended throughout the world has been precarious for some time. As [bank credit expert Hamilton] Bolton observed, though, such conditions can maintain for years. When the trend toward increasing confidence reverses, the supply of credit, and therefore the supply of money, shrinks, producing deflation.

Recall that two things are required to produce an expansionary trend in credit. The first is expansionary psychology, and the second is the ability to pay interest and principal. After nearly nine decades of a positive trend, confidence has probably reached a limit, while a multi-decade deceleration in U.S. economic expansion will soon stress debtors' ability to pay. These dual influences should serve to usher in a credit contraction.