Member Unlawful Activity and its Effect on Collateral

By Styskal, Wiese & Melchione

There is a longstanding problem with respect to member use of loan proceeds and/or collateral for impermissible purposes. Credit unions increasingly find themselves caught between more permissive societal views on matters such as cannabis use or sale and increasingly aggressive federal, state and local law enforcement activity including the use of seizure and forfeiture of assets for unlawful purposes or “racketeering.” In this environment, we suggest a review of all loan documents (including real estate secured and consumer loans and lines of credit) to modernize language addressing unlawful activity. Such language should address, among other things, prohibiting use of loan proceeds or collateral for unlawful activity, as well as default and acceleration clauses should such activity occur.

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