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.