Old Wells Fargo Contract Allows Bank To Basically Do Whatever It Wants At Any Time

A California couple is finding out the hard way that the contract for the home equity line of credit they’ve had for decades with Wells Fargo isn’t really what most people would consider a binding contract so much as an agreement that allows the bank to change the terms however it wants to and whenever it chooses to do so.

The couple, whose story is featured in David Lazarus’ latest L.A. Times column, recently received a letter from Wells Fargo giving them the bad news that their HELOC has been “discontinued,” because “it is no longer compatible with today’s systems.”

What’s more, the couple were only given one year to repay the outstanding $87,000 balance.

But wait, said the homeowners, the contract says that if their HELOC account is closed, they have seven years to repay the balance. Additionally, the contract says that the payments during that period are to the same as if the money were being amortized over 30 years, followed by a sizable lump sum payment at the end of the seven years.

At first, the bank said the contract terms had nothing to do with this situation since the HELOC had not been “closed,” as the contract describes, but “discontinued.”

The bank said it could not consider the account closed until the balance was paid off… So why would it have a 7-year repayment schedule in the contract if, by definition, there would be nothing to repay?

This is the point in the story where the bank cites this text from the contract:

“The bank may change any term or condition of this agreement with respect to both current and future balances on my account, including, without limitation, the index, the spread, and the provisions relating to the determination, calculation and reassessment of finance charge, membership fee, late charge and any other charges, fees or costs.”

One mortgage lawyer who reviewed the contract for Lazarus called this language “Very unfair,” while an attorney who specializes in contracts said, “It makes you wonder what kind of contract this was in the first place.”

“Is it our right to make changes?” a Wells Fargo rep asked Lazarus. “Absolutely.”

The rep points out that this leeway for the lender exists because the contract that was signed before 1989, when the federal Home Equity Loan Consumer Protection Act, which prevents these sort of retroactive changes to the contract, kicked in.

So even though laws now prohibit this behavior, Wells apparently thought it was just fine and dandy to change the terms on people whose contracts predate the prohibition.

Before Lazarus got involved, the bank had offered to observe the 7-year repayment schedule, but at an amortization rate of seven years. This means the the couple would be paying around $1,000/month (with little to no bubble payment at the end) rather than the approximately $240/month (with large bubble payment) that the contract had called for.

There are arguments for and against the two plans, but the homeowners wanted the latter, because that was what their contract called for.

Wells eventually relented and allowed the homeowners to pay the balance per the terms of the contract, but how many other people with older mortgages and HELOCs are being taken advantage of because they don’t have a high-profile newspaper columnist advocating for their case?

UPDATE: Wells Fargo has provided Consumerist with the following statement on this case:

Wells Fargo constantly works to offer customers up-to-date products and features. As part of these upgrades, older products, like the one in question, may be discontinued.

Impacted customers with this kind of account have been offered other options to replace this product. We offered [the homeowner] additional options that would have allowed her to replace the discontinued product and move toward paying off her balance.

We have agreed to provide [the homeowner] with repayment terms that she prefers.

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  1. longfeltwant says:

    I’d see whether a judge would call that unconscionable. At least the bank would have to stand up and defend it.

    Also: credit unions, people. Come on, let’s get together on this one. Retail financial institutions, like educational institutions and medical institutions, run a lot better without a profit motive.

    • TuxthePenguin says:

      I would rather have both in a market “competing” against each other. For example, the for-profit might have lower prices, but the non-profit better service. They’d drive both toward something that is lower-cost, but better.

      I mean… do we want US college tuition to be the pricing plan for financial services? *shudder*

    • mmmveggies says:

      My mom’s (and mine, before I got wise and closed the account) credit union sucks. They’re not the answer to everything. Some have lots of fees and draconian policies. And not the best customer service. You have to shop around for a good financial institution.

    • Costner says:

      Nonsense. I can think of a LOT of so called “non-profits” which cost just as much and offer no true benefits to their customers.

      In my area the two major hospitals are non-profit, yet instead of paying shareholders or owners with proceeds, they just find creative ways of blowing it like paying excessive executive salaries, putting their names on sports complexes, buying up huge amounts of land, installing scoreboards (with their names on them) in high schools etc, etc. The customers aren’t better off merely because they are non-profit.

      I’ve also checked into credit unions in my area, and the rates and terms are actually worse than what I get at my mega-bank. Sure perhaps their customer service is better…. I can’t really say, but considering 98% of my banking comes from the ATM or via a web browser I’m better off with a large bank that has ATMs in more locations and a much better online presence including apps for my phone and tablet etc.

      Non-profit can sometimes be a good thing, but not always. Sometimes the same motive exists to make profit… it is just a matter of where the profit goes. There are so many ways to move money around and still remain non-profit that the term non-profit is simply misleading.

  2. fizxman says:

    I’d argue that a contract that is allowed to be changed by one party isn’t really a contract and thus null and void.

    • George4478 says:

      I’d argue that if you voluntarily sign a contract giving the other party that right, the contract is completely enforceable.

      The contracts were one reason wifey and I did not jump into the ‘everybody get a HELOC and buy a new car or go on a great vacation!’ madness of the 80’s.

      • Allwayswright says:

        “I’d argue that if you voluntarily sign a contract giving the other party that right, the contract is completely enforceable.”

        This contract is unconscionable on it’s face and lacks a meeting of the minds. Had the homeowners know that this contract had such a clause, they would have never agreed.

      • Caddyshack says:

        enforceable yes, but also reasonable. I would say that forcing a family to pay back $87k in one year is not reasonable.

  3. lyontaymer30 says:

    I swear people refuse to read contracts, then want to get all mad when it comes back to bite them. It’s all the borrower’s fault in my opinion.

    • Allwayswright says:

      The written contract is just a codification of what the two parties agreed to before hand. There was not a true meeting of the minds in this case. Also, the writer of the language of the contract has a greater burden to prove the contract is valid.

    • Sneeje says:

      I agree with you in principle but it is never that simple. First, these particular terms actually go against both common sense and basic contractual law (yes, I understand things were different when it was opened).

      Also, avoiding unfair terms is actually quite difficult–they could have walked away from this one, but I bet at the time, every other institution offering HELOCs had similar terms.

      Remember that the information balance in regards to large organizations versus individual consumers is ALWAYS way out of balance. They have armies of lawyers who know intuitively the implications of every word in their contracts. I bet less than one percent of one percent of the rest of us can say the same.

      • lyontaymer30 says:

        I do agree that information is out of balance, but 90% of what consumer get caught with is easily accessible to them. It’s either given to them and they choose not to read or skim through certain parts. If you a making a 100,000 or 300,000 transaction, you have to read it. You can’t go into something that big without reading.

        • Sneeje says:

          Like I said, I agree in principle, but it just isn’t that clear-cut in reality. Consider the level of education and resources the average American has, and then consider whether or not it is reasonable to demand that they understand the implications of every word in a legal document because otherwise, tough titties.

    • Banished to the Corner says:

      Exactly. Back in 1984, I started working for a credit union, and throughout my training (4 months) and then as a fully trained rep for the next year – not one person who took out a loan read the loan. No one. I don’t remember anyone reading the account disclosures either.

      Later, I worked at a regional bank. In two years, I only had one customer read the mortgage note- which was good, because he changed the loan amount, repayment time, and distribution several times before he signed the final note. (His wife didn’t want to read the note, just the legal description of the property!!??!!). For accounts agreements, part of the disclosure we required that the customer read it out loud to us and initial it.

      I always read stuff before I sign it, but I am frequently told by the business reps that I’m one of the few that do.

      • bbb111 says:

        In the mid 90s I got the bank and title company upset because I read the loan agreements and title descriptions and asked about a few unclear clauses – It almost delayed closing because both the bank and the title company had to call the research departments to get answers (and the title company had to reorder the plat four times from different sources to get one that was legible – there was a line across part of the property with an unreadable note that they could not explain.)

        Years later, when applying for a line of credit I found some math errors in the agreement – it was for a section that didn’t apply to me, so it didn’t delay anything. However, they said that they had been using that agreement for many years and nobody noticed.

  4. Dirk Daring says:

    Dear Wells Fargo, either work with me on a better contract or I file ch7 and you get a fraction of what’s owed.

    • lyontaymer30 says:

      Alot of times you’d just have to end up going to Chap 7 lol. That’s gonna hurt you more than them.

    • Costner says:

      Except a HELOC holds the property as security… thus the homeowner would be facing foreclosure and the bankruptcy wouldn’t do much.

      The homeowners are to blame for not reading the contract. We, as a society, are always looking to blame someone else for our failures. We have come to accept a world where contracts don’t need to be read because we expect them to contain certain things or not contain certain things – thus we don’t feel we should be bothered to actually read them.

      What a joke. I can promise you in this case Wells Fargo (or another bank) would gladly offer a new line of credit to that customer if their credit was good enough. The terms would probably change slightly and the rates and costs might rise because of all the modern regulations, but they most likely would be able to get a new loan. I’m guessing they didn’t really want the new loan though… they just wanted to keep the old one with the old terms and old costs and thus that is causing the issue here.

  5. PragmaticGuy says:

    I wonder what their rate is. It might be better to refi that balance into a new first mortgage at around 4%.

    • who? says:

      While I think the bank is being asses, I was wondering the something similar. How is it that they never refinanced the HELOC into something better. At some point in the last 25 years, there has got to have been a time when a product was offered that was significantly better than what they currently have. We’ve closed and opened new HELOC’s twice in the past 15 years to get better terms, and we usually keep a zero balance.

  6. Quirk Sugarplum says:

    Wells Fargo, this is unconscionable. You gave the couple a *whole year* to pay off the balance? Do you know what could have happened in that time? They might have done it! Oh, how we miss the good old days of a week ago when we could depend on you to seize houses at random. Trust has to be earned – but not betryal. That should come easy to you! See that it does!

  7. Maxedaddy says:
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  9. Telekinesis123 says:

    You’re being worthless pos dirtbags Wells Fargo, once again proving that unless you are beaten or have the threat of being beaten into submission hanging over your head at all time (the law), when it is absent you act like who you are, complete uncivilized morally bankrupt spineless cowards that are nothing but parasites on society, the people around you, and even your families.