I was just about to walk into spinning class the other day when I received a strange call.
“Hello?”
“Hello, is this Mrs. [PoP]?”
“Yes…”
“Mrs. [PoP] – My name is Daniel and I’m your new personal banker at Wells Fargo.”
“Yes?…” (Thinking – wth? We have a personal banker?)
“Mrs. [PoP]. I was hoping we could meet and talk about what else Wells Fargo can do to fulfill your banking needs. Would you be able to come in for a quick meeting?”
Okay. I was curious. What the heck was this all about? Plus, I had never had a “personal banker” before, so I agreed to come in for a quick chat to see what the heck was up
A couple days later, I went in for a quick sit-down with Daniel. Turns out, he’s nice, pretty fresh out of college, and trying to move his way up through the ranks at Wells Fargo. So he’s being entrepreneurial and reaching out to customers to see if he can get them to sign up for new services. I can respect that kind of “go get ‘em” attitude, so I listened to what he had to say.
What Did Our Personal Banker Have To Say?
1. He Wanted Us To Get a Different Checking Account. Wells Fargo is pushing their “PMA” checking account package, and has been for the last year. It’s basically a “relationship” account. What does that entail? Well, there are fees… but if your “total relationship” with Wells Fargo is over a certain amount the fees are waived and there are a couple small benefits (that we wouldn’t really use). The thing is, we are just barely over the minimum “total relationship”, and as we pay the HELOC down (which you can see on our recent balance sheet that we’re doing pretty aggressively), our “total relationship” isn’t going to be big enough to waive the fees. I explained this to Daniel, and he understood where I was coming from, but he had more to offer.
2. He Wanted To Offer Us An Unsecured Credit Line Up To $100K. No, that’s not a typo. You can look at our financials on the net worth page. Would you offer us an unsecured credit line of $100K? Okay, so Wells Fargo doesn’t know that we technically already have a $50K unsecured loan from Mr. PoP’s parents that we’ve got three more years to pay off. But still! That’s just crazy! What is this, 2004 again? Free money for everyone with a pulse!
You want to know the craziest part of the unsecured credit line – the interest rates would be between 9% and 19%. Now, Daniel assured me that based on what we’d talked about our rate would more likely be in the 9-11% range, and if we acted by September 30th, they would be able to knock 1% off the APR as a promotional deal. (I tried to act impressed and grateful for the promotional discount…) But still! $100K loan at even 10% interest? That’s $10K in interest every year.
When I filled Mr. PoP in on my meeting with our “personal banker” later that night, he laughed with me at the absurdity of the $100K unsecured credit line. And when we were done laughing, we imagined… what if?
How Could We Maximize a Default on a $100K Unsecured Credit Line? (click to tweet)
Hey, if some institution is crazy enough to be giving away $100K unsecured, we’ve at least got to think of the possibilities…
- Sell the duplex and the residential lot. The only property we could keep in a bankruptcy would be our primary residence.
- Take out the biggest mortgage possible on our primary residence – maybe even a construction loan and put a major addition on the house, taking care of all those “cookie problems” while we’re at it.
- Use the unsecured credit line, as well as the proceeds of the sale of the duplex and lot to pay down as much on the primary residence as possible. Also use all cash reserves to pay down the mortgage or construction loan there.
- The goal is to have two buckets containing all of our assets with as little liability against those assets as possible – one for the primary residence and one for our retirement accounts (since those are the two major asset classes you get to keep in a personal bankruptcy in the US).
- Let the default begin.
- Declare bankruptcy.
- Theoretically, bankruptcy would wipe out the unsecured credit line, and let us keep the house and retirement accounts. It would kill our credit, but if we’ve got a house with tons of equity (if not completely paid off), what would we care if our credit isn’t so hot?
Obviously we’re not going to do this, and maybe you even think we’re bad people for performing this little mind experiment. But seriously. A $100K unsecured line? I still can’t get over that banks are willing to do that even AFTER the financiapocalypse of 2008.
Have you ever met your “personal banker”? What do you think of the offer for the unsecured credit line? Are we interpreting this completely wrong? What would you do if you were offered a $100K unsecured credit line?
I’m surprised you went in to talk to him. But wow, that just sounds crazy and reminiscent of recent financial housing crisis. I wish some mainstream media would pick this up.
I work in the same building as the bank, so stopping by for 15 minutes wasn’t a huge inconvenience. But yeah, we couldn’t believe how ridiculous it sounded, either. We remember how tough it was to get approved for our primary mortgage to buy our house in 2009, and here is an offer for just $12K less than that mortgage just sitting there!
Oh yes. And it was Wells Fargo, too. Actually, we had a new “personal” banker every year. Each one a young grad wet behind the ears. And, like you, we listened politely and exercised our neck muscles as we kept shaking our heads the first time. After that, we just thanked them and hung up.
When you look at WF’s statements, you see what’s happening: as America is deleveraging (fancy word for getting out of debt) Wells has to find a way to put all those free customer deposits sitting in their checking accounts to work. Those free deposits is why Warren Buffett is so in love with WF (their initials are one short for, well, you know what).
Good for you to laugh and walk out. Goodness knows how many people get snared. It’s like legal drug pushing…
Good post!
Thanks, William. I don’t disagree, and would even throw out there that I think Wells Fargo (and other banks) is trying to make up for lost income due to the new caps on debit purchase exchange fees, too!
I don’t think I have enough money to qualify for a “personal banker”! But I do try to have a relationship with the bank and I often go in personally to do my banking. There are a few financial service managers that I speak to on a semi regular basis, so I’m pretty comfortable with my bank. One helped me reduce my line of credit interest recently
I think think the term “personal banker” is pretty inflated – like calling a salesperson an “account executive”. At our branch, if you’re not a teller, you’re a personal banker… Learned that after meeting with ours. =).
Yep – this Saturday I’m a transparent wall maintenance engineer. At least that’s what I call myself as I wash our windows
That is kerrazee. I’m not familiar with lines of credit, but can you have one and not necessarily use it? Ie it is sitting there available, I suppose like a credit card?
I’ve never had a personal banker – I have no idea what the threshold is to get one, but pretty sure I’m not there yet.
Also agree job titles can be incredibly misleading. Advertising coordinators are usually glorified admin assistants, and a PR grad out of school can land a role with the title of account executive.
Yeah, if we really wanted this line of credit we could open it and let it sit there not using it, but there’s a $25 yearly fee, and I’m not sure how it would impact our credit score, so we’re in no rush to go for it.
To answer your question of credit score: There’s a very minor ding to your score upon requesting credit, as you would need to do to take advantage of your banker’s offer. But soon after that the LOC – if relatively undrawn upon and of course if kept current if used – will help your score. Every debt that you’re current on, and especially unused open lines of credit, will tend to positively affect your credit.
Anonymous Banker recently posted..Local “Economic Development”: Subsidies All The Way Down
Thanks for the answer!
[...] PoP @ Planting Our Pennies writes Meeting Our Personal Banker, or, How I Learned to Love a $100K Unsecured Credit Line – An unexpected call from a “personal banker” at Wells Fargo leads to a sit-down [...]
[...] to check out to get a flavor of our site. – How We Decided to Self Insure – Being A Landlord – Meeting Our Personal Banker, Or How We Learned to Love a $100K Unsecured Line of Credit If you like what you see, subscribe to our RSS feed and we'll keep it coming! Thanks for visiting [...]
[...] Well, that’s not exactly what our “personal banker” at Wells Fargo said when he offered us a $100K unsecured personal loan at a 10% interest rate, but it may as well have been. Taking a loan or line of credit offer just [...]
You’re not crazy for imagining maximizing the personal advantage of the bankruptcy/default scenario on $100K LOC. Someday soon I will write up my story of the guy who declared bankruptcy on my loan to him while preserving $3 million of his own net worth completely protected from creditors in bankruptcy. And driving a late-model Lexus. Ooh that made me mad.
But anyway…Your post reminded me of my recent post about the advantages of a $100K LOC: http://www.bankers-anonymous.com/blog/ask-an-ex-banker-home-loans-and-home-equity-lines-of-credit/
Of course, I’m describing a home equity line, so default has serious consequences, but…The theory still holds that lines of credit can be extremely valuable investment tools. Even at 9-19% rate of interest. If you use it opportunistically to buy, say, a distressed rental property with ‘cash’ borrowed from the line, you can end up using that line to your great wealth-building advantage. Of course there are significant risks, but there’s also opportunity as well if taken appropriately. Regards, Michael. Ps. thanks for looking at my site and commenting and retweeting!
I would love to hear the story of the guy who declared bankruptcy and managed to keep $3MM in assets.
We actually have a HELOC much like you’re describing, but it’s significantly smaller – $38K. We took it out on our rental duplex to allow us to pull some money out of there to buy more property and ended up buying an empty residential lot with it. It’s not a cash generating property, but we are pretty confident that it’s going to see a lot more appreciation than our rental duplex as our area continues to recover from the major RE crash we saw.
Interesting stuff. But unless you’re one of the relative few enjoying true financial security or truly secure employment, shot credit can itself be a risk. These days, credit can affect more than just the ability to buy a house or secure emergency funds.
You’re right – that’s something that we hadn’t thought of at the time. Increasingly employers are running credit checks on prospective employees as a measure of general responsibility and trustworthiness. Luckily this was just a “what if” not an actual game plan.