If you are a member of a credit union there is a good chance you have been hogtied by them without even knowing it. Many of you believe that the money deposited in your credit union account is yours to do with as you please. I am sorry to say you are sadly mistaken. In Oregon and Washington credit unions operate by their own set of laws[ii]. Both states allow credit unions to assert liens on the accounts and to take your money when they feel like it. It is called “cross collateralization[iii].”
For example – A client recently had his checking account frozen at a local credit union because his wife had told a friendly teller she was “worried about how they were going to make the truck payment due later that month and maybe it would be better just to turn the truck in” [ie. give it back to the credit union]. Unfortunately while she was telling this to the teller her husband had over $5,000 in his account and was in fact current on the truck and the visa they had with the credit union. Despite all of this they froze his account, denied him access to the funds and left him in limbo. When asked about the legality of the credit union’s actions their lawyer’s reply was short and simple, they cited ORS 723.454. This Oregon law that gives credit unions an automatic lien on your accounts – and thus makes it legal for them to take your money even though you are not in default on any loans with them. Don’t breathe easy if you’re in Washington, they have the same law (RCW 31.12.416).
Another client ran into financial trouble and missed her credit card payment to her credit union. In response they froze all of her accounts, seized the money and applied it to the credit card debt. She could live with that but when they took the money from her kids’ separate accounts she felt they had crossed the line. She tried explaining it was not her money it was birthday money from grandparents and allowance money the kids had saved up. When the credit union was contacted they again cited the lien statute and said because the mother’s name was on the account they could seize the funds.
It’s one thing to go knowingly into an agreement fully aware of all the ups and downs. It’s another to have them glossed over and their meaning minimized. Years ago I needed a short-term loan from my credit union to purchase a car. As I was reading the contract (I am a lawyer after all) I saw the words “cross collateralization.” When I asked the young credit union clerk what that meant she smiled excitedly and replied “it means you could come down and get a visa credit card without even filling out an application!” I started to reply asking “But, if I default on my car loan does it mean you could then clean out all of my accounts?” But after the word “default” my wife grabbed my leg under the table which in those situations means “don’t interrogate the nice young clerk who is giving us a loan” so I stopped my question, smiled and thanked her for the loan.
The moral of the story is that while some credit unions may do a fair job of managing your accounts you should never (and I mean NEVER) borrow money from the one where you primarily do your banking.
[ii] (ORS Chapter 723 “Credit Unions” for Oregon and RCW 31.12 “Washington State Credit Union Act” in Washington).