Be Aware of the Wrath of the Credit Union
Mark Puente from the St. Petersburg Times brings us a VERY important article that everyone needs to pay attention to. If you are late on a mortgage payment (or any other payment on an unsecured note) to a credit union and you hold other loans with the same credit union (let’s say a car loan), the credit union can repossess your vehicle! Even if you are current on your car loan, the credit union can repossess the car!
Why is this so important? Many people have taken advantage of lower interest rates that are offered by credit unions. Whether they take out a mortgage, a home equity line or a car loan, individuals are oftentimes attracted to very low interest rates. What people don’t do is….you guessed it… read the fine print.
According to Mr. Puente, “The tactic is called cross-collateralization. Clauses in loan agreements transform secured loans, like cars, boats or recreational vehicles, into collateral for unsecured loans like credit cards.
Credit unions can even block customers from selling a paid-off vehicle if the client has other outstanding debts with the institution.
The cross-collateralization clauses are disclosed in loan contracts, but the language is buried in the documents.”
If you or one of your clients has defaulted on a mortgage held by a credit union, make them aware of what you just read. It may save them a world of hurt.
Surprise: Credit union can take car, boat, RV if you walk out on unsecured loans
By Mark Puente, Times Staff Writer
Using a little known tactic, credit unions are repossessing customers’ cars after they default on credit card payments or other unsecured loans.
With their customers battling declining wages and unemployment, credit unions increasingly employ the perfectly legal maneuver to stem financial losses.
“It’s happening more than we know,” lawyer Shawn Yesner said. “I don’t see banks doing this, but credit unions do it a lot.”
The tactic is called cross-collateralization. Clauses in loan agreements transform secured loans, like cars, boats or recreational vehicles, into collateral for unsecured loans like credit cards.
Credit unions can even block customers from selling a paid-off vehicle if the client has other outstanding debts with the institution.
The cross-collateralization clauses are disclosed in loan contracts, but the language is buried in the documents.
“Nobody ever reads that fine print,” said Sami Thalji, a lawyer.
Some consumers first hear of the agreements in bankruptcy proceedings. A person who declares bankruptcy but wants to keep a car is surprised when the credit union adds the balance of an unpaid credit card or other credit lines to the auto loan from that credit union.
Suncoast Schools Federal Credit Union is the largest credit union in Florida and the 13th largest in the country. Jim Simon, senior vice president of loss and risk mitigation for Suncoast, said the lender is obligated to enforce the agreements and will freeze or seize accounts to cover losses.
“It’s our members’ money,” Simon said. “Every member is an owner. Sometimes we have to do unpopular things.”
Unlike banks, credit unions are member owned and return profits to members, not investors. The institutions have built a reputation on customer service and by charging lower interest rates on loans.
Suncoast is one the top automotive financiers in Tampa Bay. After taking a car or money from an account, Suncoast will likely return them when the default is cleared, Simon said.
Suncoast has repossessed only about 2 percent of cars in its portfolio of 70,000 car loans this year, Simon said. That would amount to about 1,400 repossessions. Freezing accounts, seizing money or repossessions is the last option, he added, stressing that the worst thing a consumer can do is avoid calling his lender when financial troubles arise.
“Your financial institution is here to help,” Simon said. “We don’t know what is going on in their lives. At the end of the day, it’s best to communicate with the financial institution.”
Officials with Grow Financial Federal Credit Union and GTE Federal Credit Union did not return calls for comment.
Keith Leggett, vice president and senior economist at the American Bankers Association, estimates that more than 70 percent of all credit unions use cross-collateral clauses in loan documents. He urges the institutions to be more transparent to customers.
“It’s a rude awakening,” he said. “Consumers need to understand this.”
As a convenience to customers, lenders typically dangle lower interest rates to those who open checking and savings accounts and then take on mortgages, credit cards and car loans.
Lawyers warn that consumers shouldn’t give one lender all their business. Holding multiple accounts with one credit union is not good since the lender has control over everything, Thalji said.
“Don’t bank where you borrow,” he said. “When credit unions freeze the accounts, bad things happen. Checks bounce; people can go into financial turmoil overnight.”