|Image courtesy of David Castillo Dominici
What many people don't think about is credit unions are membership based. The rules and their practices are a little different from a bank. Most have policies that if a member causes the credit union to lose money (i.e. discharge a debt/credit card in bankruptcy), the customer can no longer be a member. The credit union will terminate the customer's checking and savings accounts as well as no longer provide loans.
Another issue is Cross Collateralization. Most credit unions set up their loans to be cross-collateral loans. Let's say a customer goes into a credit union to apply for a car loan and, to so, opens a shares account for checking and savings. After financing a car for $25,000, the same customer applies and receives a credit card with a limit of $10,000. As time passes, the car loan is reduced to 15,000 but the customer max's out the card increasing his/her credit card debt to $10,000. Unknowingly, the agreement the customer signed when opening the accounts and applying for the credit, he/she agreed to secure all the credit to any collateral on any loan. As a result, the loan amount against the car is still $25,000.
This can be disheartening when a person is trying to dig out of a financial hole and need their car to do so. There may be other options (like redemption - a topic for another blog) but it complicates the case.
If you want assistance, legal representation, or just want to know more about me, Mark M. Medvesky, or Wells, Hoffman, Holloway & Medvesky LLP, check out our website at www.whhmlaw.com.
We are working with clients via telephone, internet and video conferencing during this time. We are starting to accept office appointments as well.
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