Several credit unions contacted by CreditCards.com were unwilling to talk about their practices in the interests of security. An exception was made by the State Employees Credit Union of Raleigh, North Carolina, the second largest credit union in the country. According to Spencer Scarboro, senior vice president of integration at Lending Integrity, government employees exercise their security interest in depositors` accounts only as a last resort when a loan is long overdue. The CFPB order does not mention the Marine Fed`s safety interest and the agency stated, through its communications department, that security interests were outside the scope of enforcement. See parent: Surprise! Many credit card agreements allow withdrawal The order creates new rules for lenders because they enforce their „security interests“ on borrowers` current and savings accounts. A securities interest rate, also known as a clearing or clearing right, is a guarantee fund on the institution`s credit account. Credit cards issued by credit unions usually contain a security clause. This clause confiscates funds from members` current and savings accounts, including common accounts, when the card is late. According to legal experts, credit unions can continue to freeze or withdraw the amount of the defaulted credit without affecting access to the remaining funds in deposit accounts. An exception is state social benefits, such as social security or veterans` assistance. State benefits are provided with special protection against seizure under federal law. The practice of generating security interest has its roots in the federal Credit Union Act, the Depression-era law that defines the legal framework for the activities of member financial institutions.
The law gives lending unions a right to pledge to members` „shares,“ the technical name for deposits. The „Truth in Lending Act“ made an exception for credit cards, unless lenders received a statement from customers who mortgaged their deposits as collateral for the balance owed. Therefore, cards issued by credit unions generally include such a commitment in the account contract. „It`s a wake-up call,“ said Marvin C. Umholtz, president of Umholtz Strategic Planning consulting Services in Olympia, Washington, an adviser to the credit union. „Credit unions always seize security interest. If the Navy Can`t Stick to It, who can do it in the credit union world? „We don`t want to put a member in a situation where they use a point-of-sale card, maybe they`re at a gas station, and they`ve blocked their access,“ he said. If loan repayment plans fail or the customer cannot be reached to discuss repayments, the credit union will move to recover remaining funds at that time during the audit or savings, he said.
If a loan is late, the outstanding balance can be forfeited, not just the outstanding payment, so the funds are not available for other obligations such as rent, mortgage and electricity bills. „I think if you look at the practices of other credit unions, the Navy Federal wouldn`t be unique,“ said Donald Maurice de Maurice Wutscher, a lawyer representing financial institutions. © 2007-2016 Credit Karma, Inc. Credit Karma™ is a registered trademark of Credit Karma, Inc. All rights reserved. The names of products, logos, brands and other brands that are marked in Credit Karma or that are the subject of a reference are the property of their respective owners. This site can be compensated by third-party advertisers. On October 11, the U.S.
Bureau of Consumer Financial Protection ordered the Navy Federal Credit Union, the largest credit union in the United States, to change collection practices. It also imposed a $28.5 million fine. According to legal experts, the question of how the Fed exercised control of the