Wells Fargo has reportedly implemented a new policy of closing accounts that have been inactive for over 16 consecutive months, and closures will start in April. This is part of the bank’s continued policy of reducing operations while maintaining the risk of inactive accounts at bay.
Unraveling Wells Fargo’s inactivity policy
Wells Fargo, like banks generally, periodically closes and examines dormant accounts with long stretches of inactivity. Though the bank once had a less speedy time limit, typically closing accounts after “two to three years depending on the card product and other factors,” says Wells Fargo spokesman Sarah DuBois, the new practice seems to have reduced significantly on this period.
The bank typically provides advance notice to customers regarding account closure for inactivity and also notifies them of the ways to avoid account closure. Nevertheless, financial planners advise that by the time the customers receive the notification letters, it is already too late to avoid account closure.
Why banks close inactive accounts
Banks close inactive accounts for a variety of very sound reasons. From a risk perspective, inactive accounts are potential fraud vulnerabilities. Additionally, inactive accounts incur administrative costs to banks with no accompanying revenue.
Marc Lescarret of Marc Alan Wealth Management describes how issuers are most concerned that “someone will fall on hard times and begin to accumulate debt on a credit card they hadn’t been using.” When customers of this type cannot pay back this impulsive debt, the institution is plagued by collections and potential loss.
This new policy adds to Wells Fargo continuing to accelerate its full-scale operating transformation, having already closed over 2,280 branches since 2017.
Impact on your credit score
When you close credit card accounts, their effect on your credit score can be drastic. Closing accounts lowers the overall available credit, which could raise your utilization ratio if you have balances on other cards. Because utilization ratios are “typically one of the most significant factors in calculating your credit score,” financial planners explain, closing unused accounts damages your credit reputation.
This effect is especially significant for newer consumers who have fewer accounts in total or shorter credit histories.
How to avoid having your account closed
If you’re worried about possible Wells Fargo account closures, financial planners suggest the following proactive steps:
- Keep up regular use: Although guidelines will differ, most experts recommend utilizing infrequently-used cards every quarter. Lescarret particularly advises using cards twice yearly at a minimum, although he indicates that this may need to increase with fluctuating economic times.
- Set recurring charges: One easy solution is to place a low recurring monthly subscription (e.g., streaming) on infrequently used cards and have payments run automatically, keeping the accounts active without needing constant monitoring.
- Read all notices carefully: Wells Fargo does not typically give customers advance notice before closing accounts for inactivity. Read all bank correspondence carefully and take action right away if you see a notice regarding potential account closure.
Wells Fargo’s account management history
The account management actions of Wells Fargo have been previously criticized. The bank was, in 2017, probed by the Consumer Financial Protection Bureau for allegedly harming consumers when it froze and closed deposit accounts after it picked up suspected fake activity.
More recently, in 2021, Wells Fargo backtracked on its plan to close personal lines of credit in response to consumer and lawmaker criticism. The bank ultimately chose to leave open active lines of credit open to customers who were already utilizing their lines or who wanted to re-open closed lines.
This record of backtracking indicates that consumer complaints can get a chance at affecting the enforcement of this new 16-month inactivity grace period.
Act now
If you do have a dormant Wells Fargo account, the easiest thing to do is to make a small transaction prior to April. A direct call to customer service may also assist in obtaining more authoritative information on your individual account status and any measures necessary to keep it in good standing.
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