Cross-Collaterization: Yes, They Really Can Take Your Money

by Mark Brinker

Cross-CollateralizationYesterday I got a call from someone saying that his credit card company just went into his checking account and cleaned him out. They took his money and gave no advance warning. He was flabbergasted and wanted to know if this was legal.

As much as I hate to say it, the answer is yes.

However, don’t get worried that you immediately have to move all of your money to a Swiss bank account. The circumstance that allowed this person’s credit card company to just go into his checking account with no prior warning is a somewhat unique situation that will probably not apply to most people. Let me explain.

What allowed the credit card company to just go into this person’s checking account is something called cross-collateralization. It means that if you have money in a checking or savings account and you have a credit card with that same bank then the bank can go into your checking account to satisfy a past due balance on your credit card because your checking account and credit card are under the “same roof”, so to speak. In other words, the money in your checking account is serving as collateral on your unpaid credit card balance.


Let’s say you have two credit cards, one with Wells Fargo and one with Bank Of America. And let’s say you also have a checking account with Wells Fargo.

Now let’s say you lose your job and you are unable to make your monthly credit card payments to Wells Fargo and Bank Of America. Because you have a checking account with Wells Fargo, Wells Fargo could then automatically go into your checking account and help themselves to your money to satisfy the past due balance on your Wells Fargo credit card. Bank Of America, in this example, would not be able to touch the money in your Wells Fargo checking account.

It’s important to note that the bank would only go into your checking account and take your money if you had a *past due balance* on your credit card. If you’re current, you have nothing to worry about.

Now you know.

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