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The dangers of cross-collateral agreements

| June 18, 2020 1:00 AM

Many banks and credit unions utilize a tool known as cross-collateral agreements or CCAs. Most borrowers aren’t even aware of these terms they’ve actually agreed to except in the rare case where they have read and understood their lending agreements in full. It is important to know if this term is in your agreement because a CCA allows the bank or credit union to use an asset that’s collateral for an initial loan as collateral for a second loan.

For example, if you have a credit card and auto loan at the same lender and fall behind on your credit card then the lender could seize the auto to pay off the credit card debt. This example could extend to home loans, business loans, boat loans or any other loan held with the same institution. Essentially a CCA allows the lender to use collateral from one loan to secure other loan(s).

To minimize the risk of CCAs it is best to only keep one loan with a lender; the trade-off however, may be less favorable rates so one would have to weigh the risk versus the reward. Some CCAs also extend beyond loans to savings and checking accounts held at the same institution as the lender so borrowers need to be extra vigilant understanding their loan documents. The bottom line on CCAs are the lenders’ way to protect their bottom line so they are extending their reach in a way borrowers may not be aware of. Make sure to read the fine print in your contract to see if it includes a cross-collateral provision.

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A local reader wanted to share with us that if you rent a car and purchase the rental car insurance, you could be purchasing the insurance from a third-party and not necessarily the rental company.

For example, if you purchase a rental car through an airline, Priceline or some other discount provider you are actually purchasing the car rental insurance through the third-party that the provider company uses versus if you rent a car from Avis and purchase rental car insurance from Avis you are dealing with one company.

The only time this distinction makes a difference is when something goes wrong and you need to file a damage claim. If you have purchased the rental insurance through the car company like Avis, you need to fill out the paperwork with Avis and they will take care of processing the claim.

However, if you purchased your rental car and subsequent rental insurance from a third-party provider you will have to fill out the claim with the rental car agency then immediately call the company you purchased the car insurance from to report the damage and have them fill out a report so they can submit it to the rental car company.

Just be aware that this is an extra step in the process in the event the rental company tells you that you aren’t covered. Also, one other advantage to purchasing car rental insurance is that there is no deductible unlike if you chose to use your personal insurance your deductibles likely apply to any claim you file.

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A Coeur d’Alene reader called to share his experience with a recent Visa card purchased as a gift. The idea seemed appealing because the intended recipient would be able to use the gift card at any number of merchants or restaurants as they chose.

However, after learning of all the requirements for registering the gift card along with the fees involved with gifting a Visa gift card, he discovered it may not be worth it. For starters, once you load the gift card there is an activation fee that can vary depending on the dollar amount of the gift card.

For example, if you purchase a $50 gift card you will likely have to pay a $4.95 activation fee. Then to register the gift card you will be asked for your name, address, phone number and Social Security number.

After all of these requirements are satisfied, our reader discovered there was an additional $7.00 monthly fee for the card to carry a balance. So if you decide to give a Visa gift card and the recipient squirrels it away in a drawer for seven months waiting for the perfect gift to purchase, they may well be surprised to learn that there isn’t enough left on the card to even buy a cup of coffee.

In this case, our reader would have been better off sending the receiver a check or cash for $50. It might not be as eloquent but at least, the purchasing power would have remained intact until the money was actually spent.

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Remember: I’m on your side.

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If you have encountered a consumer issue that you have questions about or think our readers should know about, please send me an email at terridickersonadvocate@gmail.com or call me at 208-274-4458. As The CDA Press Consumer Gal, I’m here to help. I’m a copywriter working with businesses on marketing strategy, a columnist, a veterans advocate assistant and a consumer advocate living in Coeur d’Alene.