- Credit Unions' Statutory Liens
- December 20, 2013 | Author: John B. C. Porter
- Law Firm: Weltman, Weinberg & Reis Co., L.P.A. - Grove City Office
What is the nature of a credit union’s statutory lien? To what extent can it be enforced? How is it enforced? Is the statutory lien self-executing? The answers to these questions depend, not insignificantly, on whether you are a state-or-federally chartered credit union. Federal credit unions may impress and enforce statutory liens on members’ accounts under the following circumstances:
- Account records. By giving notice thereof in the member’s account agreement(s) or other account opening documentation; or
- Loan documents. In the case of a loan, by giving notice thereof in a loan document signed or otherwise acknowledged by the member(s); or
- By-law or policy. Through a duly adopted credit union by-law or policy of the board of directors, of which the member is given notice.
12 CFR § 701.39(c). Notice means written notice to a member disclosing, in plain language, that the credit union has the right to impress and enforce a statutory lien against the member’s shares and dividends in the event of the member’s failure to satisfy a financial obligation, and that the credit union may enforce the right without further notice to the member. 12 CFR § 701.39(a)(4). Such notice must be given at the time, or at any time before, the member incurs the financial obligation. Id.
A federal credit union may enforce its statutory lien against a member’s account(s) by debiting funds in the account and applying them to the extent of any of the member’s outstanding financial obligations to the federal credit union. 12 CFR § 701.39(d)(1). A federal credit union may enforce its statutory lien against a member’s account(s) only when the member fails to satisfy an outstanding financial obligation due and payable to the federal credit union. 12 CFR § 701.39(d)(2). A federal credit union need not obtain a court judgment on the member’s debt, nor exercise the equitable right of set-off, prior to enforcing its statutory lien against the member’s account. 12 CFR § 701.39(d)(3).
Consequently, for federal credit unions, the federal credit union’s intent to enforce its statutory lien needs to be in writing, whether in the form of a board-approved policy, account opening agreement, or loan agreement, and the member must be provided notice at the time of or prior to incurring the financial obligation.
Regarding Ohio state-chartered credit unions: The credit union shall have a lien on the membership share, shares, deposits, and accumulated dividends and interest of a member in an individual, joint, trust, or payable on death account for any obligation owed to the credit union by that member or for any loan co-signed or guaranteed by the member or account holder; provided, however that a credit union shall not have a lien upon the funds in an individual retirement account or an account established pursuant to the Internal Revenue Code of the United States.
ORC § 1733.25(E)(1). There is no writing requirement for Ohio state-chartered credit unions. Although, including an acknowledgement of the credit union’s lien in account opening disclosures, loan documents, or a formal board-approved, written policy are not bad ideas and are most likely commonly implemented. Further, this statute specifically states that this lien applies to payable on death accounts. Consequently, whether you’re a state-or-federally chartered credit union does determine how and the extent to which the statutory lien is enforceable.