Credit Unions Can Seize Funds to Cover Credit Card Defaults
Tip It!Here’s an interesting little tidbit from Consumer Reports Money Advisor… Almost all credit unions require you to put up your other accounts as collateral when applying for one of their credit cards. Thus, if you default on the card, they can take your savings and apply it toward what you owe them. In contrast, very few banks require this sort of collateral when opening a credit card account.
Hopefully this won’t directly impact you, but it’s certainly worth knowing about.
Published on January 22nd, 2009 - 7 Comments
Filed under: Banking, Credit Cards
About the author: Nickel is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!
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7 Responses to “Credit Unions Can Seize Funds to Cover Credit Card Defaults”
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January 22nd, 2009 at 7:38 pm
Hubby and I are debating about wether or not to take the $7500 from the government for being first time home owners. In 2 years we will have to start paying “them” back $500 for the next 15 years. If we were to sell our house in that time and do not make a profit the debt would be forgiven. I’m not sure I want to owe anyone anything, hubby thinks it’s basically an interest free loan that can be used to finally get us debt free. What’s your take on this?
Thanks!
January 22nd, 2009 at 11:14 pm
There’s nothing like loaning the bank $1000 in a savings account earning 0.25% just to turn back around and borrow your $1000 back on a credit card at 19+%.
January 23rd, 2009 at 3:41 pm
Still, my local CU (I belong to two) have current VISA rates between 5.99 and 7.99 %. And they report to the credit bureaus as standard credit cards, not secured credit cards.
January 25th, 2009 at 1:32 pm
I assume it would just be other accounts held at that credit union? I would never use my online savings account as collateral on a credit card!
January 25th, 2009 at 1:36 pm
PS of the 2 credit unions we are a part of, one of them doesn’t even offer a credit card.
January 26th, 2009 at 11:40 pm
That’s called good business. I love my Credit Union.
January 27th, 2009 at 10:10 am
This reminds me of when I worked as a bank teller in college. We had a lot of people who would have credit cards and loans default or run checking accounts so negative we closed them down and eventually charged them off. Anyway, a lot of these same people who owed the bank money on charge-offs would still come in to cash checks, so the bank actually instructed us to apply the funds from the check presented to the bad debt rather than giving it to the customer. And to answer the question some are wondering, this was a fairly large regional bank and not a little one branch shop.
Looking back on it this seems really jerky, but the point is to not think you can continue using the other services of a bank or credit union if you owe them money without the risk of some adverse action.