Can a Credit Union Take Money From Your Account?
The short answer is yes. And here’s how.
For over 25 years, I worked as a debtor’s attorney, filing over 4,000 consumer Chapter 7 and Chapter 13 bankruptcy cases. Now, I focus on representing creditors who are looking to recover what they are rightfully owed from Texas debtors. One common concern I hear from creditors is whether credit unions can take money from an account to pay off debts. The answer is complex but crucial for creditors to understand.
While many people assume that credit unions are bound by the same laws that apply to banks, they have some unique powers that allow them to recover debts, particularly when it comes to offsetting funds from a debtor’s account.
How Credit Unions Can Take Money from Your Account
Credit unions may offset funds in your account with the money owed on various types of loans, including personal loans, car loans, and sometimes credit card balances. Unlike the Fair Credit Reporting Act that restricts banks from taking money from an account to pay a credit card debt, credit unions are governed by different rules. They can use their “set-off” rights when you owe money on a loan or credit card and have funds deposited in the same credit union.
So, yes—a credit union can take money from your account if you owe them on a loan or credit card. But, here’s the catch: in order for this to happen legally, the debtor must have signed an agreement that grants the credit union a lien on their account, making it collateral for the debts owed. Many consumers unknowingly sign these agreements, unaware that their accounts are used as collateral.
Exceptions to the Rule
There are two exceptions to the law regarding credit unions offsetting funds from accounts:
- Written Agreement: If a member signs an agreement authorizing the credit union to take funds from their account to pay off a debt, the credit union can legally seize those funds.
- State Law Remedies: Credit unions are allowed to use state law remedies if they have a security interest in the debtor’s account. This means if a debtor has signed an agreement that grants the credit union a lien on their accounts, the credit union can take money from the account to cover the owed debts.
Credit Unions Can Take More Than Just Money
In some cases, if you default on a loan or credit card debt with your credit union, they may not only seize funds from your account but also repossess collateral you’ve pledged, such as a car. This is a significant risk for debtors, as they may not be aware that they are placing their assets at risk when they sign loan agreements.
Why Do Credit Unions Do This?
Credit unions are in the business of lending money, and while they may seem like a friendly community institution, they are in fact sophisticated creditors. Many debtors, especially those with long-standing relationships with their credit unions, feel they can trust them and avoid bankruptcy. However, credit unions often benefit from these relationships by using liens on accounts to secure debts, ensuring they can collect payment.
How to Protect Yourself
As a creditor’s attorney, I urge all creditors to be aware of the risks associated with credit union debt recovery. For debtors, it’s crucial to fully understand the agreements they sign and how they may be subject to offsets on their accounts. Unfortunately, many consumers are unaware that by taking out loans, they are giving the credit union a lien on their bank accounts, which could result in the seizure of funds.
For creditors, knowing how to navigate these agreements can help you recover what is owed to you. If you are a creditor looking to reclaim funds from a Texas debtor, understanding the power of credit unions to offset debts is key to your recovery efforts.
If you’re a creditor who has dealt with a debtor and their credit union accounts, and you need legal representation to recover what is owed to you, I can assist you in pursuing legal action. I work with creditors to navigate the complexities of Texas law and ensure that your rights are upheld in bankruptcy and other debt recovery matters.
