We recently wrote a blog post letting people know that their bank cannot take money from their bank account to pay their delinquent credit card accounts. As we wrote, the Fair Credit Reporting Act was enacted more than 40 years and it outlaws your bank taking funds out of your account for your credit card. We made it clear that it DOES apply to credit unions too. But credit unions are a sneaky bunch and they have other tools and laws that they use to take money out of your account.
Let’s begin with a brief background on your credit union’s ability to offset funds in your account with money you owe on the credit card. As the act states, your credit card issuer may not take any action to offset the debt you have on the credit card with funds you have on deposit with the credit union. When you have funds in the credit union, it OWES you money. When you have a credit card balance with the credit union, you OWE it money. So an offset allows the credit union to offset the money it owes you (funds in your account) with money you owe it (credit card debt).
To be clear, the credit union CAN offset the money in your account with other types of loans like a personal loan or a car loan. These loans are NOT covered by this law. The law says that your credit union CANNOT offset the money in your account on a credit card. Or can it?
Unfortunately, there are two exceptions to this law. The law allows an offset if the credit union has an agreement in writing, that you signed, that authorizes it. Also the credit union is allowed to enforce its state law remedies against you. So if you give the credit union a security interest in your bank account as collateral for your credit union, it now has a lien against all the money in your account. Why would you sign such an agreement? Normally you wouldn’t agree to this, but you need the money and they likely explain to you that it’s “normal.” Even if you don’t think you have an agreement, I bet that you do. How do I know this? Because I have seen probably a thousand of these agreements. And unfortunately, most of my clients were not aware that their share and checking accounts were collateral for their credit card and others loans with the credit union.
Folks, I cannot tell you how many times a client has told me that they did not want to put their credit union debts in their bankruptcy. I hear how good they think the credit union has been to them. They actually say “but they have been so good to me. There were there when I needed help. I can’t file bankruptcy on them.” Well, guess what, they are so good to you because they are loaning you money. That’s their job. I don’t care if you are a member or not, they don’t make money unless they loan it to you, with interest. Yes, the credit union seems so nice. It’s Christmas time and you are a little short on cash. Boom, there is a nice little invitation from the credit union to give you a Christmas loan. So nice of them to put you further in debt right?
Wrong. What the credit union fails to make you understand is that when you get that loan, you have to sign an agreement giving them a security interest in EVERYTHING else you have as collateral with them. So if you have a car loan with the credit union, guess what? You have now added ANOTHER lien to that car with that simple little Christmas loan. They may tell you this, but they certainly don’t beat it into your head. And if you don’t understand that, well, they figure that’s your problem, not theirs.
Which leads us back to your share account and checking account. When you get a credit card with your credit union, you sign an agreement giving them a lien on your accounts. Under state law, if you are delinquent on ANY account, they are authorized to take money from your accounts to bring the credit card account current. Or worse, to take every dollar you have in those accounts to pay down the balance owed.
And it really can get worse. I’ve had to be the bearer of bad news to hundreds of bankruptcy clients. It is not fun having to explain to someone that they gave their truck as collateral for their credit card debt. So in essence, you not only have to pay back your truck loan, you ALSO have to pay back the credit card debt to keep the truck. That sucks.
As it turns out, this little neighborhood credit union that you love is a VERY sophisticated creditor and very crafty too. It protects itself from your loss by taking a security interest in your accounts. So even though Federal Law prevents the credit union from taking money from your share and checking accounts to pay your credit card debt, the credit union takes advantage of the law’s “out clause.” The credit union has you sign an agreement giving it a security interest in your accounts (and truck, etc) and then authorizing it, under state law, to exercise its set off rights against your accounts on your credit card debt.
You can get mad. But you signed the agreement, so you are stuck with it. Luckily the credit union is REQUIRED to not only make you aware its doing this, but also have the agreement specifically authorize it. Why is this important? Because it give you an opportunity to REVIEW the credit card agreement and ask questions about it. In this 2010 Maryland District Court case against the Montgomery County Teachers Federal Credit Union, the District Court Reviewed the Federal Reserve Board ‘s official staff commentary on the Truth in Lending Act . In the opinion, the Court held that it was very clear that the consumer MUST be aware that the grant of a security interest in the credit union accounts is a condition for the credit card and 1) the portion of the credit card agreement granting the security interest must be separately signed or initialed, or 2) the security agreement must be on a separate page or otherwise separated from the other credit card contract and disclosure provisions, or 3) it must reference a specific amount of funds on deposit or the deposit account number. As it turned out in this case, the security agreement authorization was buried in the eighth of twenty pages of the agreement. This will not suffice. Nor will handing this agreement to the consumer AFTER the credit card account was granted.
The credit union MUST make you aware that you are giving it a lien in your share and checking accounts, BEFORE you sign the credit card agreement. So if you sign the credit card agreement and don’t know this, then that is your fault. Unfortunately, about 85% of my clients didn’t read the agreement and didn’t know they did this. And were harmed by it.
This is why our law firm is here. To answer the question of Can Credit Union Take Money From Your Account. To GIVE you information to help you be a better informed consumer. And to help you understand that even your little neighborhood credit union, at the end of the day, is just another creditor. They are in this to make money and they only make money when you get a loan or a credit card with them. So remember this, your credit union will almost always force you to give it a lien on your share and checking accounts, and your truck if you have a loan with it, whenever you sign up for that Christmas loan or for their “cash back” credit card.
The law firm of Busby & Associates has helped thousands of people eliminate credit card debt owed to their credit union. The question of whether or not a credit union take money from your accounts is one we get a lot. This, among many other questions, that we answer daily for our clients. If you owe your credit union money, don’t rely on your friends and co-workers for advice. Call our law firm today to see how you can protect your money.