How I Finally Ditched My Big Bank Account

Karachi, Pakistan - November 29, 2011: A young man cutting Visa credit card to quit the credit cycle in Karachi, Pakistan.

I’ve been a Wells Fargo customer since January 2013. I opened my first credit card with the bank, my first and second set of business deposit accounts, and had my personal deposit accounts with them. In total, I had five accounts with Wells Fargo.

I started having second thoughts about my loyalty to the bank in September, when revelations of Wells Fargo’s fraudulent sales tactics came to light. From 2011 to 2015, in an effort to boost their sales figures, Wells Fargo representatives opened more than 1.5 million deposit accounts and 565,000 credit card accounts without customer authorization, according to the Consumer Financial Protection Bureau. As a result, customers were charged a total of $2 million in fees. Wells Fargo agreed to pay a whopping $185 million fine to settle those claims, which were filed by the CFPB.

The scandal left me reconsidering my decision to bank with Wells Fargo at all. This month, I made the decision to close all of my remaining accounts with Wells Fargo and open up a new account elsewhere. I don’t know yet how many more Wells Fargo customers will join me, although the company’s third quarter earnings report indicated its retail business hasn’t survived the scandal unscathed. The bank saw a 25% year-over-year decline in new checking account opens, and credit card applications were down 20%.

Still, the bank’s customers are known for being loyal. Last year, Wells Fargo ranked the highest in customer satisfaction, beating Bank of America, Chase, and Citibank.

For me, the damage was done. It was time to switch banks.

Making the Big Switch

Moving to a new bank is hardly a painless process. That could be why so few Americans make the effort, despite a rise in onerous bank fees at large retail banks. Only 17% of account holders switched their primary financial institution in 2014, according to one study.

Here’s how to do it:

  1. Breaking up with my big bank

I quickly realized it was not going to be a clean breakup. A search on Wells Fargo’s website showed me that my account had to be empty before I could close it. That would mean either making one big cash withdrawal, or opening a new account at a different bank first and transferring the funds over.

I decided to go with option 2. I would open a new bank account and transfer my Wells Fargo balance over.

  1. Choosing a new bank

I used the MagnifyMoney checking account tool to guide me in the right direction. In the end, I chose to open an account with Ally Financial, an online-only bank. I had been considering opening an account with an online bank for a while. Online banks typically don’t charge as many fees as big banks because they have much lower overhead costs.

I opened a savings account, too. I was only earning 0.01% at Wells Fargo. Ally offers a 1% yield on its personal savings accounts, which will be a big incentive for me to save more.

  1. Transferring funds to my new bank  

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It took me five minutes to open a checking and savings account at Ally.com. At the same time, I linked my Wells Fargo account to my Ally account, which would allow me to transfer my funds over.

  1. Closing my Wells Fargo account

Once my account was empty, I sent an email to Wells Fargo through the bank’s online portal requesting the account be closed. Within 24 hours, a representative sent me a message saying my account would be closed in four business days.

  1. Keeping my zombie account at bay

Here’s the big risk when you close a bank account: It leaves a trace of itself behind. And any type of transaction — deposit or withdrawal — can reawaken the account. (They call them “zombie accounts” for a reason.) You may not even realize your old account was opened again, and you could rack up unnecessary fees for months or years until you notice it.

It only took me a few days to mess this one up. I closed my Wells Fargo account very close to my normal payday. I didn’t update my direct deposit account quickly enough, which meant my paycheck went into my old Wells Fargo account rather than my new Ally account. Suddenly, my “closed” account was reopened again. And I had to repeat the process — withdrawing funds and closing the account all over.

  1. Erasing my banking past

I decided to shred the debit cards that were previously linked to my Wells Fargo account. I also shredded my checkbook. It’s important to take these steps to avoid identity theft. Like I said, even the smallest transaction could reawaken my old bank account.

  1. Updating all my payment accounts

I make most of my recurring subscription payments through a PayPal account, so that made life simpler. I only had to change my bank account linked to PayPal. Next, I updated Venmo, which I use frequently to pay my roommates my share of rent and utilities. I changed my Amazon account information, went ahead and updated the rideshare apps I frequently use like Uber and Lyft, and updated my automatic bill payments with T-Mobile.

You should do this with any other apps you use that are linked to your old debit card or bank accounts. When you do change the information, make sure to delete your old bank account information so there’s no chance of accidentally charging the account.

If you use any online resources or applications to manage your finances, you should update them to keep information current. This is optional, but important if you want to keep track of where your money is going. For me, that meant updating my Mint.com account.

With all of that done, the bank switch was complete. It only took about an hour execute the steps above, and my Wells Fargo accounts were all closed within four business days once I got the closing process restarted.

The post How I Finally Ditched My Big Bank Account appeared first on MagnifyMoney.

How the Wells Fargo Scandal Could Impact Your Credit Score

Wells Fargo Bank

Since 2011, roughly 2.1 million accounts were opened by Wells Fargo Bank for existing bank customers who didn’t actually intend to apply for them on their own. While some legislators are calling for the company’s CEO John Stumpf to resign, the damage for many Wells Fargo customers impacted by the fraud has already been done. In some cases, customers have seen their credit scores damaged.

If you’re a Wells Fargo customer, you probably have just one question:

What should I do if I’m one of the bank’s customers who ended up with accounts for which I never applied and what’s best for my credit scores?

 

We’ve got you covered.

The fake accounts opened by Wells Fargo employees fell into four separate buckets of account types, according to the Consumer Financial Protection Bureau. Three of those four account types could result in some sort of credit score reduction: Deposit accounts (checking, saving); Credit card accounts; debit card accounts.

Credit Card Accounts

According to the CFPB, Wells Fargo submitted roughly 565,443 credit card applications that “may not have been authorized.” The application likely resulted in a credit report being pulled and a credit inquiry occurring, which as I explained above can cause a score to go down, albeit a minor decrease and in some cases has long since been removed. The more meaningful issue regarding credit cards is what to do with the open credit card account that is almost guaranteed to be on your three credit reports.

The impact of the credit card account can fall into one of three categories as it pertains to your credit scores; positive, negative or neutral.

Positive impact: If the account has no balance and a large credit limit then it’s very likely helping your credit scores because of the positive influence it’s having on your credit card balance-to-limit ratios. If this is the case then leaving the account open, assuming you actually don’t mind having it, may be the best course of action especially if you’re about to go out and apply for some sort of credit and need the best credit scores possible.

Negative impact: If the credit card account is relatively new then it may be lowering your scores because it is lowering the average age of the accounts on your reports. Closing the account isn’t going to change that because closed accounts still have a “date opened” and a young closed account is considered the same way that a young but open account is considered. If this is causing too much of a score problem then asking that it be removed may be your best bet. The deletion will back out any impact on your scores.

Neutral impact: If the credit card is unremarkable then it is likely not having any measurable impact on your credit scores. So, no huge credit limit helping your balance-to-limit ratios and the age of the account isn’t helping or hurting your scores.

In that case you can either live with the account and leave it open or you can close it or perhaps even ask that it be removed.

Deposit Accounts and Debit Card Accounts

According to the CFPB Wells Fargo opened roughly 1.53 million deposit accounts and an undisclosed number of debit card accounts that may not have been authorized by the customer. Deposit accounts generally include checking, savings and money market accounts…any place where you can make a deposit. Deposit accounts and debit cards are never ever reported to the credit reporting agencies so if one was opened in your name it’s not on your credit reports.

However, if the bank pulled a credit report prior to opening the deposit account or issuing the debit card (not unheard of) then there could be a credit inquiry on your report that you didn’t instigate. If that happened then there’s a chance your credit score went down as a result. Having said that, the inquiry would fall into one of these 3 categories and would be considered accordingly…

  • If the inquiry is over 24 months old then it has already been deleted by the credit bureau/s and is no longer being considered by any credit scoring systems.
  • If it is between 12-23 months old then it is still on your credit report/s, but is not being considered by any credit scoring systems.
  • If it is under 12 months old then it is being seen and could result in a lower credit score on that one credit report. If possible, I’d ask that any unauthorized inquiries be removed because they have no redeeming value. Point being, inquiries never help your scores.

While it was not mentioned in the CFPB’s Consent Order, in many scenarios overdraft protection on checking accounts is reported to the credit reporting agencies as an unused installment loan, normally with a line of no more than a few hundred dollars.

If that did, in fact, occur with these Wells Fargo checking accounts then the installment loan could result in a lower score but only if that loan is significantly lowering the average age of the accounts on your credit reports. The age of your credit history factors into your credit score. If it’s too low, it could drag your score down.

The post How the Wells Fargo Scandal Could Impact Your Credit Score appeared first on MagnifyMoney.

Are You Helping Banks Make an Extra $17 Billion a Year?

overdraft fees

A new report has found overdraft fees are more than just a potential nuisance — they’re a $17 billion moneymaker for banks.

“In total, overdraft and [non-sufficient fund] fees cost Americans more than twice what they spend annually on eggs ($7.4 billion), far more than they spend on baby clothes ($9.7 billion), and more than they spend on books, newspapers and magazines combined ($13.1 billion),” the report released this week by the Center for Responsible Lending said.

CRL analyzed banks with more than $1 billion in assets, which were required to publicly report their overdraft and NSF fee revenue for the first time in 2015. In doing so, it found that account holders at those institutions paid more than $17 billion annually in overdraft and NSF fees, which are typically $35.

The Consumer Financial Protection Bureau, which contributed to the study, found three-fourths of overdraft and NSF fees are paid by only 8% of account holders, who incur 10 or more fees per year. CRL estimates nearly two million Americans pay 20 or more overdraft fees annually, which translates to $700 or more (not including NSF fees, which drive costs even higher).

For a low-income family earning a median salary around $26,800 annually, $700 is real money; in fact, it’s nearly a third of the average Earned Income Credit payment of $2,400, the report said.

“Ultimately, costly overdraft fee practices push some families out of the banking system altogether,” CRL concluded, as FDIC data indicate approximately 778,800 houses and more than one million adults who once had bank accounts are currently unbanked due to high or unpredictable fees.

The CRL is calling for regulation to make overdraft fees “reasonable” and limited to one per month and six per year. It also wants overdraft programs to receive credit protections, such as allowing account holders to repay what they owe in affordable installments.

The American Bankers Association (ABA), a trade group that represents the financial services industry, said account holders do have the power to turn things around.

“Consumers who choose debit card overdraft protection services receive a consumer-tested, one-page summary of terms, fees and alternatives before opting-in,” Virginia O’Neill, senior vice president of ABA’s center for regulatory compliance, said via email. “They also receive written confirmation, notice when overdraft occurs, and a summary of overdraft fees they’ve incurred highlighted on their monthly bank statements. Those who no longer want access to the service may opt out at any time.”

Avoiding Overdraft Fees

If you’re regularly being hit with bank fees, try getting in the habit of looking at your checking account to ensure that you have enough funds before making purchases. (Spending more than you have could put you in debt; check out how much your debt can cost you over a lifetime with this tool, and see the effects of your spending habits by viewing two of your credit scores for free on Credit.com.) You may be prone to overspending, in which case it’s time to think about reigning in some of your bad habits. You can read up on how to pinch pennies without feeling deprived here.

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Image: WavebreakMedia

The post Are You Helping Banks Make an Extra $17 Billion a Year? appeared first on Credit.com.