Generally, credit card debt is categorized as unsecured debt, or debt not secured by property you own. In a testament to always reading the terms and condition when you sign up for a new cared, some credit cards have recently been discovered to include a security agreement that can give credit card companies the right repossess your property if you default.
Many credit cards, including several from big-name department stores and even some medical cards, allow the lender to seize items you bought if you don’t pay your bill. Capital One-backed store cards from Costco, Big Lots and Guitar Center are among a few of the many credit cards that contain a security interest clause in their agreement. The right to repossess the items you bought with the card, remain in effect even if you file bankruptcy.
Many consumer advocates claim that this security interest clause undercuts protections against the seizure of household goods by lenders. The typical clause allows creditors to repossess until 100 percent if the balance associate with the item is paid and can sometimes be vaguely worded or looked over by the cardholder.
According to the National Consumer Law Center, while security interest clauses are more common, the threat to seize the collateral is rarely enforced. In order to repossess the goods, a court ordered is needed. Furthermore, it is often difficult to resell the used possession. With this in mind, the threat of repossession is more often used as a collection tactic that collectors can use as leverage in order to obtain a settlement payment from the borrower. Whether repossession threats are serious depends largely on the dollar amount and condition of the item.
While many individuals breeze over many important parts of the credit card agreements, the Credit CARD Act of 2009 requires credit card agreements be posted publicly, giving you a second chance to thoroughly vet your agreement before signing up for a credit card. Additionally, the Consumer Financial Protection Bureau also publishes template agreements for consumer cards on its websites. The bottom line is that it pays to read your entire credit card agreement to discover if the credit card you are considering has a security interest clause or fees that will quietly raise the cost of credit.