A binding contract, but not for Wells Fargo Wells Fargo tells a couple that despite what a contract says on their home equi-

ty line of credit, they have one year to pay off the roughly $87,000 outstanding.

September 13, 2012 | David Lazarus

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 sys-

tems."

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 re-

maining 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 honor-

ing the terms of the contract. She said the initial

response was that Wells was interpreting the con-

tract 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 peri-

od 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

"It looks like 'without "It looks like 'without "It looks like 'without

limitation' means every-limitation' means every-limitation' means every-

thing," said Laine thing," said Laine thing," said Laine

Wagenseller, a Los Ange-Wagenseller, a Los Ange-Wagenseller, a Los Ange-

les lawyer specializing in les lawyer specializing in les lawyer specializing in

contract law. "It makes contract law. "It makes contract law. "It makes

you wonder what kind of you wonder what kind of you wonder what kind of

contract this was in the contract this was in the contract this was in the

first place." first place." first place."

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 limita-

tion, the index, the spread, and the provisions provi-

sions 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 spe-

cializing in contract law. "It makes you wonder what

kind of contract this was in the first place."

Gregory Alumit, a Costa Mesa lawyer who specializ-

es 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 numer-

ous pages of conditions and fine print when the up-

shot 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 say-

ing 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 prom-

ised. 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 origi-

nally 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 be-

cause 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 long-

time 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 hon-

or the terms of the contract, if that's what the Ban-

durs 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.

Laine T. Wagenseller is a real estate trial attorney in

Los Angeles. He is the founder of Wagenseller Law

Firm, where he specializes in breach of contract litiga-

tion. For more information on the firm, please visit

www.wagensellerlaw.com.