Recently, a relative had an unpleasant experience with a large Tennessee credit union due to the credit union's use of cross-collateralization clauses.
Her father had died. At the time of his death, he had outstanding car and credit card loans with the credit union.
She paid off the car loan but the credit union refused to release the title until she paid off the outstanding debt on his credit card. The credit union had cross-collateralized the credit card loan with the car loan.
This costs her several thousand dollars more that she could hardly afford.
If it had been me, I would have given the credit union the keys to the car and walked away.
It seems to me that the Consumer Financial Protection Bureau should examine this practice by credit unions to determine if it is abusive.
My, aren't you the generous one. There is no information regarding the amount of equity in the car or the size of the estate. My guess is the daughter wanted the car but didn't want to take care of dear old dad's other debts and obligations.
ReplyDeleteI thought credit card debt was unsecured. But it appears not to be the case at many credit unions.
ReplyDeleteThis should be a warning signal to people -- don't have all your accounts with a single credit union.
Keith,
ReplyDeleteI think the practice is fairly typical at credit unions..as visa credit cards replaced the old personal unsecured lines of credit, the cross collateralization practice went with the visa credit card offer. We are into relationships, not one off products and services. All fully disclosed. If someone isn't willing to cross collateralize, we aren't willing to extend credit. That is also why we can offer 6.9%,8.9% and 10.9% rates instead of 18% plus.
Your comment added context. Thanks.
DeleteIn this case, I agree with Dr. Leggett. Reg Z is specific about security on credit cards. The CUs I have worked for have cross-collateralization clauses but I have encouraged not to use on credit cards because of the Reg Z requirements on secured credit cards.
ReplyDelete