Could Your Fridge be Repossessed?

Feb 21, 2014 by

car being towed

Uh-oh. Guess I missed a car payment.

You know from movies and reality television about vehicle “repo” men—guys who cruise neighborhoods in tow trucks hoping to snag a vehicle whose owner has defaulted on the car’s loan. But did you know that items in your home that you purchased with a credit card might also be subject to repossession if you get behind on the account? Might you come home from work one day to find a dusty square on the floor where your refrigerator once stood?

Security Interest Clause

Most people—including me—think of credit card debt as “unsecured,” meaning no physical object is subject to forfeiture if the borrower defaults on the debt. But I got educated recently thanks to an article on CreditCards.com about credit card account agreement “security interest” clauses.

The Consumer Financial Protection Bureau now maintains a searchable database of credit card agreements. CreditCards.com examined 1,600 of these agreements filed with the CFPB in the third quarter of 2013. Over 200 of these agreements included security interest clauses, including Capital One-backed card agreements filed by Costco, Big Lots, and Guitar Center, and by Wells Fargo’s high-APR lending arm.

A security clause gives the card issuer repossession rights, and these rights persist even if you file bankruptcy! The card issuer’s security interest typically allows repossession until 100 percent of the balance associated with the item is paid. According to CreditCards.com, “[t]he security interest language in some Capital One-backed store cards gives the bank a claim on payments from insurance or extended service contracts, as well as on merchandise. The term also makes the cardholder bear some of the responsibility for returning purchases.”

Up until now I’d thought bankruptcy was always the ultimate protection from credit card issuers, but apparently I’ve been mistaken.

Are Security Interest Clauses Ever Invoked?

I’ve never heard of anyone having their personal belongings repossessed because they defaulted on credit card debt. Have you? Given the hassle and cost involved with such repossessions and the relatively low value of most used consumer goods, I’m guessing actual repossessions very seldom happen.

But I’m sure debt collectors working for the credit card issuer use the security interest clause as leverage. “If you don’t pay up, we’re going to send the sheriff to your home with an order authorizing repossession of your 52-inch plasma television.” I can see where that tactic could be effective in scaring up some cash from debtors, and that’s probably where the value of security interest clauses lie.

Do Your Agreements Include a Security Interest Clause?

If, like me, you’re sufficiently anal to have retained every edition of your card issuer’s agreement, you could read the agreement, carefully keeping a keen eye out for the phrase “purchase money security interest.” Or you can look for your issuer’s agreement in the CFPB’s searchable card agreement database. You can search by issuer or for specific text strings.

Did You Know About Security Interest Clauses?

I’m curious whether I’m the only one who didn’t know about these security interest clauses in credit card agreements. Have you heard of such a thing? Are you interested enough to take the time to check whether your card agreements include a security interest clause?

Digiprove sealCopyright secured by Digiprove © 2014 Kurt Fischer
All original content on these pages is fingerprinted and certified by Digiprove