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Information on Right of Offset
Friday, Feb 20, 2009
Question: If I have multiple accounts with a bank that have funds in them and I have an auto loan with the same institution and i have just gone late on my first payment. Can the bank automatically deduct the payment from one of my accounts? and if so, how soon can they take action?
Answer: Federal law limits how banks can use funds in a consumer’s deposit account to pay a delinquent debt with the same bank. In many cases, a bank can withdraw funds held in a consumer’s checking, savings, or investment account, to pay any delinquency which has accrued on secured debts owed by the same creditor; a bank’s ability to take such action is referred to as the “right of offset.” Federal law restricts the application of the right of offset, preventing federally chartered banks (such as Bank of America, Wells Fargo, etc.) from using the right of offset to collect of delinquent revolving debts, such as credit cards. However, since the loan in question is an auto loan, it is quite possible that the bank has every right to withdraw funds from your deposit accounts to bring your loan current. I strongly encourage you to review your auto loan contract and deposit account agreements,
as these documents should outline the bank’s right of offset in case of delinquency on your secured loan. To read more about banks’ right of offset for various types of debt, you can visit helpwithmybank.gov .
Smaller financial institutions, such as credit unions and state chartered banks, often have much more freedom in offsetting delinquent debts against a consumer’s deposit accounts. Unlike national banks, which are chartered by the Office of the Comptroller of Currency, credit unions and state chartered banks are regulated under various state and federal laws, many of which do allow for the offset of deposit accounts for payment of delinquent unsecured debts, such as credit cards. Even federal credit unions, which are chartered and regulated by the National Credit Union Association, have much more freedom to
Smaller financial institutions, such as credit unions and state chartered banks, often have much more freedom in offsetting delinquent debts against a consumer’s deposit accounts. Unlike national banks, which are chartered by the Office of the Comptroller of Currency, credit unions and state chartered banks are regulated under various state and federal laws, many of which do allow for the offset of deposit accounts for payment of delinquent unsecured debts, such as credit cards. Even federal credit unions, which are chartered and regulated by the National Credit Union Association, have much more freedom to
offset customer debts than national banking associations. Because of the various laws regulating state chartered banks and credit unions, you may wish to consult with an attorney licensed in your state to discuss your state’s laws regarding a creditor’s right to offset.
Since you are only one month behind on your auto note, the easiest was to prevent any further collection activity by the lender, including possible offset against other accounts, would be to pay the debt. If you cannot afford to bring the loan current in a single payment, the lender may be willing to work with you in establishing an affordable repayment plan.
I wish you the best of luck in resolving this outstanding debt, and hope that the information I have provided helps you Find. Learn. Save.
Best,
Bill
www.bills.com/blog/
Since you are only one month behind on your auto note, the easiest was to prevent any further collection activity by the lender, including possible offset against other accounts, would be to pay the debt. If you cannot afford to bring the loan current in a single payment, the lender may be willing to work with you in establishing an affordable repayment plan.
I wish you the best of luck in resolving this outstanding debt, and hope that the information I have provided helps you Find. Learn. Save.
Best,
Bill
www.bills.com/blog/
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1. Posted by Jason Baruch on Friday 6th March 2009 12:36
Recently, I visited a Wachovia Bank to cash my payroll check drawn on a Wachovia account. I have a Wachovia account that is currently negative (and is in dispute with Wachovia). Can the bank refuse to cash my check due to this negative balance? If so, what is the law or set of laws that allows this? This Wachovia location did indeed refuse to cash my payroll check written on their bank. I asked my new bank, Regions, if this was legal and they agreed with me that this is an illegal policy. If this is indeed an illegal policy, how can I force/require the bank to honor their own checks in the future? Where would I complain about this instance? Upon calling Wachovia to complain they basically called me a deadbeat and told me that they are abiding by the law under their "Right of Offset". I however, cannot find one statute or case where the right of offset applied to cashing the bank's own negotiable instrument. All findings for the right of offset seem to only affect deposited monies in various forms. Please help as this is an infuriating situation. Thank you in advance for you time and assistance in this matter! Sincerely, Jason Baruch
2. Posted by Sam on Monday 9th March 2009 02:13
Thanks for your post, Jason. However, since I do not know your state of residence, I cannot tell you whether or not Wachovia has violated any laws in this situation. I do know that, for the most part, bank managers have discretion in requiring various forms of ID, charging fees, etc., for cashing checks. However, if you meet these requirements, they should cash any check drawn on their bank. I would recommend going in and not even telling them that you are a Wachovia customer. If they ask you if you have an account, say "no." Hopefully, they will then just process your check like any other non-customer presenting a check drawn on Wachovia. Maybe you should go to a different branch. In a worst case scenario, you may want to complain to you state Attorney General, the federal Office of the Comptroller of Currency, etc., though you will probably not receive any help for several months. In a worst case, go talk to your local legal aid office to find out what rights you have in this situation. I wish you the best of luck!