A binding contract, but not for Wells Fargo

Question: When is a contract not worth the paper it’s printed on?

Answer: When it contains weasel words so broad in scope that one party is free to change whatever it wants, whenever it wants.

Janet Bandur and her husband, Darrell, discovered this after Wells Fargo contacted them recently to say that their home equity line of credit was being closed because “it is no longer compatible with today’s systems.�

The Bandurs were told they had one year to pay off the roughly $87,000 they had outstanding on the account.

“I don’t understand why they did this to us,� Janet Bandur, 66, told me. “We’ve had this line of credit for 24 years. And suddenly there’s a problem?�

The Woodland Hills couple pulled out their contract to see whether Wells Fargo could shut down their account willy-nilly. At first glance, it seemed not.

The contract said that if the account was closed, the Bandurs must pay any outstanding amount “within seven years,� not the one year Wells was insisting on.

Moreover, the contract specified that if the Bandurs chose to make minimum payments over that seven-year period, payments would be calculated “on the basis of a 30-year amortization schedule.� All remaining funds would have to be paid in a lump sum when the seven years were up.

Bandur called the bank to ask why it wasn’t honoring the terms of the contract. She said the initial response was that Wells was interpreting the contract differently.

A bank rep explained that the account wouldn’t be considered officially “closed� until the balance was paid off, Bandur said, so the seven-year grace period wasn’t applicable.

Points for chutzpah.

Bandur pressed her point. She said Wells’ own letter referred to the account being “discontinued.� That sounds pretty near to being closed.

Fine then, the bank replied. In that case — and I’m paraphrasing now — Wells reserved the right to do whatever it wants. So there.

Does the contract allow that? Apparently so. Buried deep in the document is the following passage:

“The bank may change any term or condition of this agreement with respect to both current and future balances on my account, including, without limitation, the index, the spread, and the provisions relating to the determination, calculation and reassessment of finance charge, membership fee, late charge and any other charges, fees or costs.�

I shared this provision with some lawyers. They said that those two words — “without limitation� — appear to give Wells the right to change any term of the contract in any way at any time.

“It looks like ‘without limitation’ means everything,� said Laine Wagenseller, a Los Angeles lawyer specializing in contract law. “It makes you wonder what kind of contract this was in the first place.�

Gregory Alumit, a Costa Mesa lawyer who specializes in mortgage matters, said the contract seems “very unfair,� but it’s apparently legal because the change-of-terms provision was fully disclosed.

Wells’ own lawyers presumably could argue that the onus is on borrowers to read and understand any contracts they sign. But it’s hard not to feel that the bank was pulling a fast one on customers.

Why make people sign contracts that contain numerous pages of conditions and fine print when the upshot is that Wells can dictate new terms whenever it pleases?

The Bandurs filed a complaint with the Office of the Comptroller of the Currency, the federal agency that oversees national banks.

In response, Wells sent the couple a new letter saying they could indeed have seven years to pay off their account, but the payments would be amortized over the seven years, meaning that each month they’d owe at least $1,000.

But that’s not what the original contract had promised. It said the Bandurs could make minimum payments based on a 30-year amortization, which would have entailed paying closer to $240 a month — albeit with a huge balloon payment at the end.

Regardless of whether that made good fiscal sense, this was the deal the Bandurs had been given originally and it was the deal they wanted, Bandur told me.

Jennifer Langan, a Wells spokeswoman, said the contract language does indeed empower the bank to pretty much do as it pleases. “Is it our right to make changes?� she said. “Absolutely.�

But Langan said the bank had such a right only because the Bandurs have a contract that was signed before 1989, when the federal Home Equity Loan Consumer Protection Act took effect. That law amended the Truth-in-Lending Act to prevent such after-the-fact term changes for credit lines.

Think about that: Wells respects the 1989 law that blocked mistreatment of customers. But for longtime customers whose contracts predate the law, it has no problem with exercising its right to push them around.

At least there’s a happy ending. Langan told me that Wells will back off its position and will instead honor the terms of the contract, if that’s what the Bandurs want. She said the bank believes it can offer them a better deal, “but we’ll give them what they’re asking for.�

I passed that along to Bandur, who said they’ll stick with the original deal. “We want to pay off the loan, but we want to pay it off at our own speed,� she said.

Just as their contract promised.

David Lazarus’ column runs Tuesdays and Fridays. He also can be seen daily on KTLA-TV Channel 5 and followed on Twitter @Davidlaz. Send tips or feedback to [email protected].