What legal recourse is available when our bank reduces our credit limit?

[Anonymous]

Here's the situation: We have been banking with Wells Fargo since 1993.  We have two mortgages with them on our home and a rental property.  We have around $200,000 in equity combined between the two properties so we are not a financial risk to them or anyone else for that matter.  We have 100% payment record in both our credit profiles (not a single missed payment) and have an average credit length of 11.3 years so there is plently of availabe payment history on our credit profile.  We have a credit card with Wells Fargo that has a $10,000 line of credit since 2003.  We recently paid off the card and they reduced the line of credit to $1,000.  Even after the reduced credit line, we are only 43% utilized (we have $61,000 in total credit lines and are using $26,000.  The reduced credit line raised our credit utilization rate overall.  The whole point in paying off this card was to better our overall utilization rate which would have increased our credit scores above 750 which would have in turn reduced our interest rate on our other cards.  Higher utilization rate affects what our other cards are charging in interest as well as higher interest rate on future mortgage financing and auto loans.  The goal was to pay off the Wells Fargo to improve our credit utilization rate so that the interest rate on other cards, mortgages and auto loans would improve.  However, the opposite affect has taken place.  Our credit scores were 729 (wife) and 732 (husband).  Due to the drop in the credit line, our scores are now 703 and 706 respectively.  What legal protections due we have at our disposal?  This credit line reduction will cost us hundreds if not thousands of dollars in additional interest over time.  I've read other posts and it seems that what the banks and credit card companies are doing is to keep utilization rates higher for consumers so that they can charge MORE in interest collected. Is there a government oversite or resource center to protect consumers in our situation?  Is our congress doing anything now or in the future to protect the banks from munipulating consumers utilization rates just so the banks can collect more interest?  A possible solution is for the credit reporting agencies to allow consumers the benefit of the higher limit for a period of time so that there is no immediate impact on the credit score giving consumers time to pay down their credit accounts before the reduced credit limits take affect.  An example would be that if a credit line reduction causes your OVERALL CREDIT LIMIT (the accumulative total of all your credit cards) to be reduced by 10%, you have the benefit of the higher limit for 3 months to give you time to pay your other credit accounts down before the reduced credit limit affects your score.  A 20% reduction gives you 6 months.  A 30% reduction nets you 9 months time and so on.  The length of time to pay down should be tied to the overall reduction percentage.  Congress should enact this type of law immediately and it would not be that radical of a change.  It would protect consumers.  There should also be some agency that protects consumers from their banks and I'd be willing to pay an additional .25% each month (1/4 percent) on my accounts to ensure this protection agency exists and can look out for me as a consumer.  Any ideas or thoughts?

[VegasKyle]

I'm no expert but I don't think they did anything illigal. 

[snozberries]

You can file a claim with the Consumer Financial Protection Bureau, the federal agency created to deal with consumer complaints about credit cards, mortgages and other consumer financial products. Their complaint portal is growing, and they have levied fines against several major card issuers. Unfortunately, a credit limit reduction is probably well within in the terms of service agreement you consented to when you opened the card account. CFPB mainly polices "abusive and deceptive" practices, and it will be difficult to achieve any positive resolution if terms of a CLD were laid out clearly in the cards terms.

http://www.consumerfinance.gov/complaint/

[teddybearkelli1]

+1 - agreed, they are the credit grantor so is their option. They could be lowering it due to trying to decrease their financial risks, just as the bank can close accounts at their discretion as well. Unfortunately credit is a luxury, not a guarantee on either parties side.

[youngandcreditwrthy]

While that is a lot of cc debt ($26k)

it seems as though they are really messing with you.

As your mortgage lender, they should know that you have plenty of equity to back up your unsecured debt.

idk what I would do.. of course you should report to the CFPB(I LOVE the CFPB; thanks Liz Warren!!)

otoh, DO NOT take out a home equity loan as you would then be putting your assets on the hook for a silly unsecured debt!

I would: ask for clis on your other accounts, and if your credit history permits- open some type of new balance transfer account.

Hope you get it figured out!!

[enharu]

Not to sound offensive or anything, but what you are trying to do is pretty much going to be argued as "trying to bite the hand that feeds you, just because they are feeding you less now."

The banks themselves can come up with thousands of excuses on why they decreased yours and/or others credit. It could simply be they just didn't want to loan out as much money now. This isn't isolated with just Wells Fargo.

Maybe they felt that you have way too much credit limit for your income level and lowered it to what they think is appropriate to reduce their risk. Maybe it's to screw you over like you said. Who knows? More importantly, who can prove it?

It's their money that they are offering to lend to you. The right to increase or decrease falls within theirs. You can't possibly sue your neighbor just because he decided to stop lending you his lawn mower one day. Same logic here

[CreditCrusader]

For all the "Banks can do whatever the want within the TOS" BS you will read here, it seems as though these jerks are balance chasing you to sock you with higher interest rates on your big-ticket items i.e. the mortgages. You might go into a branch and explain that 700+ borrowers aren't without other options. See if that shakes them loose a bit.

[ryanbush]

I don't mean to sound negative here or like I'm attacking you.  I understand you have a graet credit history, but not knowing you're annual income it's not that far fetched that to understand why they lowered your account, you have over 25 thousand dollars in credit card debt.  Just like anyone else on this board you are only one major life event away from defaulting on that debt at anytime, 25k is a huge liability and the bank that lowered your limits just wants to reduce their exposure to that risk.

[ryanbush]

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@youngandcreditwrthy wrote:

While that is a lot of cc debt ($26k)

it seems as though they are really messing with you.

As your mortgage lender, they should know that you have plenty of equity to back up your unsecured debt.

idk what I would do.. of course you should report to the CFPB(I LOVE the CFPB; thanks Liz Warren!!)

otoh, DO NOT take out a home equity loan as you would then be putting your assets on the hook for a silly unsecured debt!

I would: ask for clis on your other accounts, and if your credit history permits- open some type of new balance transfer account.

Hope you get it figured out!!

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He would be smarter to take out a home equity load and pay it off faster at a lower interest rate, at the amount of debt they have even though the debt is unsecured if they were to default the lender would still sue and get a judgement against their assets.

I'm sorry but just becasue you have equity in your house does not give you the ability to pay off a high amount of unsecured debt, equity in a house is not liquid by any means, especially in this market.  and considering the OP has so much current debt I would guess that they have very little in savings also.  If they do have much in savings they should use that to pay off the debt and quit paying interest.  I can't even imagine what the interest payment would be on 25k every month.

This reduction in credit line isn't going to cost the OP any money, if they don't apply for new credit.  it just means they were going to have to pay more of their debt off before they apply.

[kimmiller112]

With two mortgages and positive equity, you definitely have some options.  Did you talk to someone to see what they had to say for a reason of doing this?  If not, do that first and let them know that you are considering other options with regards to your mortgages and banking needs.  Maybe they will take another look at your overall history with them and reconsider their decision to decrease your limit.