Wedding Ring as Loan Collateral

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Question:

Can we take a wedding ring as collateral on a consumer loan if we hold possession of the ring and it is for purposes other than to purchase the ring?

Answer:

Well from your phrasing I'm supposing you are familiar with Reg AA. Under that reg, a wedding ring would be considered "household goods" (see 227.12(d) and (d)(4)). 227.13 prohibits a bank from taking a nonpossessory security interest in household goods other than a purchase money security interest.

Since you are holding possession of the ring, you haven't violated this provision. From a compliance standpoint, I don't know of any reason you couldn't do what you've described. Your key challenge is going to be from a standpoint of having a valid and perfected lien. I'm not an expert in this field, so I would advise checking with an attorney familiar with UCC-9 to determine if possession is enough to perfect the lien.

First published on BankersOnline.com 2/05/07