Can an IMMA be used for collateral on a consumer purpose installment loan?

I'll need clarification - what is an IMMA?

Insured Money Market account

We commonly refer to it as an MMDA, same thing. And since it is a savings account, I believe you can. That said, you'd have similar problems as using a DDA. They write a check for payment and you have to decide to reduce your collateral value (funds on hold) or return the item on a good customer.

See this prior discussion.

You cannot use a DDA account as collateral. A DDA account is a Demand Deposit Account and the bank must pay upon demand any legitimate item presented for payment, when it is presented. The physical presentment of the item is when the demand is made.

Placing a hold for collateral purpose can be construed as showing a preference for a creditor. A bank cannot show a preference on a demand account which is why you do not place holds for merchants or other banks that call on the phone.

Take the funds out of the DDA account and put it in an account that is not a demand account that is pledgeable for collateral.

Savings accounts are not payable on demand items and with all other account requirements being adhered to, can be used as collateral. Make sure you don't lock your collateral to an account with some type of restriction or time frame that prevents the bank from taking the funds if and when it is necessary to do so.

I was focusing on the practical aspects of using a DDA which is similar to the legal side. That being, the customer has access to their funds by writing a check. In a MMDA, they do the same thing even though it isn't a DDA.

The ultimate problem is that you have a secured loan, fully collateralized and a check presented for payment on a good customer. Do you decollateralize the loan or embarrass the customer by returning the large check he wrote for that car or diamond ring?

I am not the Art. 9 expert and I know there are ins and outs of perfecting liens here. But I have read some attorney's Q&As which indicated that taking a DDA as collateral wasn't the best way to do this, but wasn't "illegal". That tells me it can be done, but isn't the smart way to go. I've never done it because I was taught what Don said above. But I don't know if that is the way we've always done it or a true legal interpretation.

OK, I know this thread has been dead for 6 years, but I just found it while doing a search. Yes, according to the UCC, a loan can be secured by a demand account, but there is considerable risk in doing it. [UCC §9.102(a)(29)] Unless your state has a non-uniform amendment to the UCC or has another law that prohibits it, it can be done. Perfection on deposit accounts is accomplished by control. See UCC 9.104, 9.312, and 9.314. You shouldn't take escrow accounts, IOLTA, any kind of fiduciary account, or payroll accounts as collateral.