Wells Fargo's Reversal: Smart Move or Not?

Wells Fargo (WFC 1.24%) made headlines recently when it decided to get rid of personal lines of credit, a move that was met with criticism from customers, industry experts, and politicians. In this Fool Live video clip, recorded on Aug. 23, Fool.com contributor Matt Frankel, CFP, and Industry Focus host Jason Moser discuss Wells Fargo's reversal and what it means to investors. 

Jason Moser: Well, speaking of controversy, Matt, several weeks back we talked about Wells Fargo's decision to shutter its personal lending products. It looked like it was something where they more or less just decided one night they were going to stop offering these personal lines of credit I believe they were and then they said, well, they are doing it because they just felt like they needed to and by the way, it may impact our credit score. We're not really sure, but this is just what we're going to do. We said on the show when we were talking about this initially that probably the biggest risk to Wells Fargo was just in their messaging of this because it didn't seem to be very well planned out. I can certainly understand consumers doing a double-take and saying, what do you mean it might impact my credit score and this is going to be something that I have zero control over. I wasn't terribly surprised, Matt, to see that it seems like Wells Fargo has had a little bit of a change of heart.

Matt Frankel: Well, and it also seems like their PR people are getting better for the first time around. Remember, we said they expanded really poorly.

Moser: They did.

Frankel: They should have blamed the credit scoring thing on FICO because that's whose fault it was.

Moser: Yeah.

Frankel: They expanded better this time. They said they're leaving existing credit lines alone provided that they are active, customers are actively using them.

Moser: Yeah.

Frankel: They're not opening any new personal lines of credit and they made that decision over a year ago, by the way, so that's nothing new. Inactive accounts will be closed in December, so if you have a Wells Fargo line of credit that you're not using, they're going to go ahead and close it in December and that's actually really common with a credit card too. I don't know about you if you've ever gotten one, but If I don't use a credit card for a year or so, they'd send me something saying your account is inactive and we might close it. It's a common practice with inactive accounts because banks want to lend money to people who want to borrow. I'd say they actually expanded a lot better this time. They said this decision was based on feedback from their customers, I think it was based on pressure from people like Elizabeth Warren and the media and whoever else. I don't really think that it was the customers, but better messaging this time.

Moser: Yeah.

Frankel: Smart management decision and this is a pat on the back to Wells Fargo's management. I think they did it well.

Moser: Yeah, I tend to agree. I mean, it didn't make a whole heck of a lot of sense. I mean, the decision is one thing, the way they message it in entirely separate thing and it really did feel like the messaging they just missed the mark and so hopefully, I'd like to think that they did make this decision based on consumer feedback. If the reality of the situation is that it was from other external pressures, at the end of the day, I think it's still the right decision, and so it's good to see that end result no matter how they got there and probably boards well for their brand in the longer-term as being a more customer-centric, customer-friendly, therefore, your customer type brand, which ultimately, I mean, let's face it, with a bank like Wells Fargo, I mean, that's a very familiar brand you want and you need really that consumer trust, that faith, that your bank, you are going to be there for your consumers, for your customers when they need you most and this hopefully makes customers feel a little bit better.