Understanding Your Rights as a Credit Card User

It is important to understand the difference between secured and unsecured loans, and where your credit card debt falls. Secured loans are those in which the creditor maintains a security interest or for which the borrower must put up some kind of collateral, while unsecured credit does not require that the creditor have a security interest. Some of the most common secured loans are mortgage loans and auto loans. When you have a mortgage, the property is the collateral. Similarly, when you have an auto loan, the car functions as the collateral, and the creditor maintains a security interest in the vehicle.
Usually, credit cards do not work this way. We tend to assume that all credit cards are unsecured, meaning that the creditor has no security interest in our property connected to our ability to buy on credit. However, according to a recent article in the Los Angeles Times, you may need to read the fine print on your credit card agreement a bit more closely.
Credit Card Companies with a Security Interest
As the article explains, we typically do not read the numerous pages of fine print that make up our credit card contracts. Yet it is important to understand the terms to which you are agreeing when you sign up for a credit card and begin charging items. What credit card terms can sneak up on you? For starters, the bank that issues the credit card may actually have a security interest in your property purchased on the card. For instance, the article cites one consumer’s credit card agreement, which includes the following language:
“You grant us a security interest in all goods you purchase through the use of the account, now or at any time in the future and in all . . . proceeds of such goods.”
What does this mean in practical terms? As the article suggests, it is “a fancy way of saying that [the bank] reserves the right to send guys to your home and take any stuff you’ve purchased with your card if you don’t pay your bills.” And what happens if you do not have the goods any longer? If you have already sold something, for example, that you purchased on the card, then the bank can take the money you made from the sale.
Why are such terms surprising so many consumers? In short, these terms are “hard to believe because credit cards traditionally have represented what’s known as unsecured debt, meaning no collateral is required to receive the loan.” In the event that a consumer fails to make timely payments on a credit card, traditionally the creditor has one of two options: file a lawsuit against the debtor or accept less money than what is owed through a settlement.
Lenders Creating a Different Kind of Relationship with Consumers
Credit cards that gave the issuing banks a security interest used to be more common. However, following a major settlement that resulted in Sears paying $273 million because of security interest provisions on its credit cards, most lenders are not engaging in this tactic. However, Comenity Capital Bank is one lender that is continuing to issue credit cards that have security interest provisions in their agreements. While you might not even know that you have one of these credit cards, there is chance that you do in fact rely upon one of these cards. Comenity “is a leading issuer of store cards, including for retailers Ann Taylor, J. Crew, and Pottery Barn.”
But are these provisions fair? Would the lender actually try to repossess property when a consumer’s bill is not paid on time? While we cannot say for certain when a lender like Comenity would or would not make good on the security interest provision, such an agreement allows the bank to take the property that is technically theirs. If you do fall behind on payments and have concerns about property repossession, filing for consumer bankruptcy may be something to consider.
If you have questions about filing for personal bankruptcy, a dedicated Oak Park bankruptcy lawyer can discuss your situation with you today. Contact the Emerson Law Firm for more information.

See Related Blog Posts:
Canceling Bar Loans Through Consumer Bankruptcy

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