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FCUs Cannot Freeze Account of Member Who is Current on Loan

ALEXANDRIA, Va.-The Mid-Atlantic's unusually chilly winter weather may be reaching down into the Southern region. Alexandria USDA Federal Credit Union (La.) wrote NCUA recently to ask if a federal credit union can use its statutory lien authority to `freeze' an account that is current, but was formerly delinquent. According to...

By Staff Writer | Updated on December 31, 2002

ALEXANDRIA, Va.-The Mid-Atlantic’s unusually chilly winter weather may be reaching down into the Southern region. Alexandria USDA Federal Credit Union (La.) wrote NCUA recently to ask if a federal credit union can use its statutory lien authority to `freeze’ an account that is current, but was formerly delinquent. According to NCUA Associate General Counsel Sheila Albin, this is not permissible, nor is it acceptable to freeze an account for overdue obligations to another lender. However, a financial obligation other than repayment, such as a restriction on the sale of collateral, can qualify as default within the statutory lien regulation. When a member defaulted on a loan, Alexandria USDA froze the member’s account, held jointly by the member’s mother and child, after deducting a monthly payment. For practical purposes, the loan essentially became share secured with the freeze. The loan is now current, but the credit union wanted to continue the freeze on the account. Alexandria USDA felt that freezing the account and deducting funds to bring a loan current is less offensive than taking the full outstanding balance, to which Albin suggested that the terms of the loan be modified. In addition to the statutory lien regulation, the attorney pointed out that the Federal Credit Union Bylaws allow for freezing the account of a member who is delinquent on a loan. The credit union also asked NCUA if past due loans to another lender would allow the credit union to freeze the account because the language in the loan contract states, “you will also be in default if something happens which the credit union believes may substantially reduce your ability to repay what you owe.” Albin said the debt would have to be with the credit union.

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