My sisters credit union has recently made her aware of the fact that all six
of her loans are cross-collateralized. She has 3 non-secured loans with
them and 3 loans secured by autos. They recently threatened to reposes one
of her vehicles because she was late on one of her signature loans. She
asked them how they could do this and they stated in her contract she agreed
to cross-collateralization. I read up on Cross collateralization and found
that it is only legal if it is obviously displayed in the contract. Is this
I also heard that in some states, in order for the clause to be valid, the
borrower had to initial next to the clause when they accepted the loan. If
this is true, where would I find a list of the states?
"To secure payment of this promissory note and any and all extensions or
renewals thereof in whole or in part, and all indebtedness now or in the
hereafter owing by borrower to CU, borrower grants and pledges to CU a lien
upon, and a security interest in, borrowers shares in all joint and
individual accounts and any other monies held by CU now or in the future, to
the extent of any loan made any changes payable: and a security interest in
the collateral securing this loan, as described above or securing other
loans that the borrower has with CU now or in the future, including any type
of change or increase: and any proceeds from the sale of such collateral and
of insurance thereon not to exceed the unpaid balance of the loan".
I would bet money that at least 75% of their customers have no knowledge of
this clause. **In my opinion** (which doesn't mean much) the verbiage is
written in a way so that 'if read' the average person would not fully
understand it. In addition, it happens to be in size 6 font on the
I have downloaded promissory notes from other credit unions, which have the
same clause, but it is written very differently. They use the words
cross-collateralization, property, or deposits & some even give examples.
This is by far the most complicated version that I found.
Doesn't this fall under deceptive practices? Intentional misleading of
Would customers be able to bring the credit union to court in a class action
suit for deceptive practices? I know that it's a long shot, but I is there any chance at all?
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