When reviewing credit card agreements, one issue arises more often than any other – obtaining a security interest in a deposit account. Credit unions commonly have a provision in the agreement granting the credit union a security interest in the member’s share draft account. It often takes the form of a right to offset or freeze the member’s deposit account in the event of a default under the credit card agreement. Subject to any state law limitations on acquiring a security interest, in substance this is enforceable. This is an area, however, where the form can trump the substance. To be enforceable under 12 C.F.R. 1026.12, the member must specifically intend to grant such a security interest. A provision routinely included in the agreement will not suffice. The commentary to the rule provides three examples that will meet the requirement to make the member aware and obtain his or her specific intent to grant a security interest:
A. Separate signature or initials on the agreement indicating that a security interest is being given.
B. Placement of the security agreement on a separate page, or otherwise separating the security interest provisions from other contract and disclosure provisions.
C. Reference to a specific amount of deposited funds or to a specific deposit account number.
You should review your credit card agreement and ensure that you are using at least one of these methods if you intend to enforce a security interest or exercise a right of offset.