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Question:
MAY 18, 2012

Right of Offset

I have a credit card with the same bank that I save money, can they debit my account if I am late on the credit card?

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Bill's Answer: Bills.com Resident Expert

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.

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, see the Office of the Comptroller of the Currency's document Answers About the Right of Offset.

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.

Recommendation

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 hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com

Comments (53)


Mark J.
Lake Forest, CA  |  January 31, 2012
I'll try to make this short, yet complete... My ex-wife had an account at a Fed credit union, in California. Daughter started a "joint" account at age 14, in 2006. Daughter got a job, and put her wages into that account. Ex-wife failed to make payments on her checking "Overdraft" account. In 2009, credit union took $4300 from daughter's account, to pay toward ex-wife's Overdraft account. Is that legal? Thanks Very Much for your advice, here. Mark
Bills.com
January 31, 2012
Your story explains the perils of joint accounts in painful detail. If your daughter's mother signed a contract with the credit union that allows offset, I do not believe your daughter has any recourse to recover the money from the credit union.
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Mark J.
Lake Forest, CA  |  January 31, 2012
Darn. Thanks, though, for the reply. I was hoping that Federal law supercedes the contract fine print, in that the $4300 never belonged to the ex-wife. Daughter's wages were the Source of the funds in that Joint account. That's irrelevant? Thanks, again.
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Steve C.
Murrieta, CA  |  February 09, 2012
Hi Mark, I might be wrong, but if your ex-wife was the only account holder on the overdrawn account, the CU didn't have the right to offset. The only way a CU can exercise the right to offset is if both account titles match. You can't exercise the right of offset on which an account has one sole owner from an account that includes joint ownership. What credit union was this if you don't mind me asking? I used to work for Valley Credit Union and Commonwealth Credit Union in San Jose before moving to Temecula. You might want to contact the NCUA regarding this.
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Mark J.
Lake Forest, CA  |  February 09, 2012
Thanks for that opinion, Steve. Ex-wife was sole-owner of her account, and Daughter was a minor when opening her account, thereby requiring Ex-wife as a joint-owner. So, if you're correct, we'll recover the funds! Cool! At the time, it was Orange County Teachers FCU, since renamed to Schools First FCU. I do have NCUA contact info at the ready, but I haven't even approached the CU yet, trying to recover the funds. For now, I'm just "planning the attack". Do ya' happen to know where that statute/law that you referred to is? Thanks.
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David M.
Austin, TX  |  May 18, 2012
Hey Mark J, I have the EXACT situation going on right now except I'm the son, and the bank took over $15,000 of my money to pay off my mom's debt. Mom opened my account when I was 16 and I have used it for the past 10 years and she has never touched it since. I'm not sure if you've gotten this case resolved but maybe we can learn a few things from each other and recover our funds. Please post a reply, so we can see if a back-and-forth will help us.
Tim Y.
Newport Beach, CA  |  November 06, 2011
Is there a statute of limitations around fighting a bank who used the "right to offset"? I was the victim of a Ponzi scheme a couple years ago and Chase emptied my account on the basis that at some point in the past the account holder of the Ponzi scheme had kited some checks leaving Chase with an account in deep over draw territory. I would like to file suit against Chase but am unsure if its too late. Also this happened in CO and I now live in CA.. Does that matter? Thanks for your help Bill.!
Bills.com
November 07, 2011
Consult with a lawyer in CO who deals in commercial litigation, who will be able to deal with the specifics of your case.
Dan W.
Keller, TX  |  October 06, 2011
If I am delinquent on an unsecured debt (credit card to Capital One), and Cap One buys an institution in which I have an account that holds stocks, can they sieze the stocks?
Bills.com
October 06, 2011
Review the cardholder agreement you signed with the credit card issuer. Look for a section called "Right of Offset." If Capital One included language that gives it the right to offset a debt on a credit card with the cardholder's other accounts, then there is your answer. If there is no right of offset spelled out in the contract, then it may not touch your separate account.
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David M.
Roanoke, TX  |  February 09, 2012
Am wondering, what if the bank (Cap One) has sold the debt? What happens to right to offset at that point? Does it transfer over?
Bills.com
February 09, 2012
My first reaction to your question is the answer is "no," but my second reaction is it would depend on how the right of offset was written in the contract you and Capital One signed. Review your contract for the most certain answer.
Michelle W.
Gilbert, AZ  |  September 30, 2011
I apologize in advance for the length of this post... I filed for chapter 13 bankruptcy in July. I had two car loans through our bank which is a credit union. We included our car loans in our repayment schedule through the trustee. In August the bank took an automatic payment for both cars and had to return it because of the automatic stay. We contacted the bank and the risk department instructed us that no further transactions would be honored on our checking account and that we needed to go to the branch and withdraw our funds and close our account. An automatic deposit was scheduled to hit our account the next day. They agreed to allow this one deposit but made it clear that no other transactions - deposits,outstanding debit card transactions, or checks - would be honored. When we went to the bank on Aug. 17th, withdrew the funds, and closed the checking account. We were told that we could not close the savings account because of the two car loans and that we had to leave funds in the savings account to keep it open. On Sept. 9 the bank accepted an electronic deposit sent to the closed checking account and put the funds into the savings account. Then on Sept. 28 they took the entire savings balance and applied it to the car loans. I called the risk management office again and they agreed to give us back the deposit but said the other funds were pre-pettition funds and so they would not return them to us. They also said that now we would need to go to the branch and take out the amount they returned and close the savings account. Can they do this? We would have closed the account in August but they wouldn't let us. Can they take these funds even though we are already paying the car loans through the payment plan? Thanks for your help.
Bills.com
September 30, 2011
Consult with your bankruptcy lawyer to learn if your credit union violated federal bankruptcy laws. If the chain of events you described is accurate, I believe it did, but again, your lawyer will be able to see documents you provide, and can offer a more precise opinion.
Diane C.
Port Saint Lucie, FL  |  September 29, 2011
Question if Joe & Jill have joint checking account and Lisa & Joe have a joint checking both at the same bank. and Joe and Jills account overdraws- can the bank take money from Lisa and Joes account to offset Joe's other account being overdrawn... even if Lisa doesn't have anything to do with and doesn't even know about the other accoutn until she sees the withdrawl taken without notification?
Bills.com
September 29, 2011
Joint accounts create more problems than they solve, as your anecdote illustrates vividly. I recommend people open separate accounts at the same bank or credit union, and then use that institution's online banking tool and balance transfer feature to move funds between accounts as necessary.

Back to your question: Review the contract you signed with the bank or credit union when you opened the accounts. Some institutions give themselves the right of offset that you described.
Chelsa D.
N Lewisburg, OH  |  August 13, 2011
I would like to know the terms of the Banks "right to Offset". I have an installment loan with the same bank as my two checking accounts. I have used this bank for all of my financial needs, loans, checking, etc. My loan is now past the grace period, but not past 30 days, and the payment was taken from my checking account. I have never been past 30 days on any of my loans with this bank nor has this situation ever happened before. Can the bank offset my checking, even if my loan is not yet 30 days past due?
Bills.com
August 15, 2011
What your bank can do depends on the language of your agreement with the bank. It is doubtful that you read all the fine print when you opened your accounts, but the answer to your question lies there. It may be the case that the terms of your installment loan specified that the action the bank took is permissible.

As the article mentioned, there is additional information about the right of offset at the Office of the Comptroller of Currency's Web site that you can locate by using the link in the article.
Abdul S.
Irvine, CA  |  April 11, 2011
In searching the internet I am getting conflicting information on what constitutes "credit card plan" as it relates to limitations on federally chartered bank's right of offset. Is a line of credit set up as overdraft protection for a checking account considered a "credit card plan" and is subject to limitation on bank's right of offset. Thanks.
Bills.com
April 11, 2011
I suspect you see conflicting information because each credit card issuer sets up their overdraft plans differently. Review the contract you signed with your credit card issuer for the card to learn if the overdraft plan is contemplated, and if so, its terms and conditions. My guess — note that word choice — is the overdraft plan is a separate contract that is not a part of the original credit card contract.
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Abdul S.
Irvine, CA  |  April 11, 2011
Thanks for the quick response. I believe you misunderstood the question. I have the account set up as a Line of Credit and I was given a checkbook and no credit card. The Line of Credit is also linked to a checking account. So I can draw on this line of credit by ether writing a check against the line of credit or writing a check against my checking account creating an overdraft. Some articles that I read on the internet state that this kind of an open ended account falls under the defination of "credit card plans" which is also an open ended line of credit account. Some articles so no that the offset restriction applies strictly to a credit card even though the regulation states "credit card plans". This is where my confusion is as to who is correct. Thanks.
Bills.com
April 12, 2011
Take your line of credit contract to a lawyer in your state who has experience in securities law or consumer law. I can understand that if you stand far enough away from a line of credit it looks like a credit card, but the mechanics of how the transaction occurs are different legally. A check is a negotiable instrument that is covered by laws that are separate from credit card laws, for example. Lines of credit precede credit cards by a hundred years or more, and are discussed in many state statutes. Credit cards are a much more recent invention, and are not even mentioned in most state laws. I could go on but you get the point: Let a lawyer in your state review your contract.
PM M.
Hampton, VA  |  March 26, 2011
I own a house that is currently in foreclosure. The house has a loan from Wells Fargo for $216,000 and another home equity line from Wells Fargo as well for $55,000. I believe Wells Fargo sold the Home equity line to a credit company a few months ago. Two days ago, Wells Fargo charged a joint account that I have with my mother (I am the primary on the account) for $12,000. Is this legal? This money was all I had left to survive and I have not had a real job in over a year. I don't know what to do at this point, I have no living money and since my credit has deteriorated because of the foreclosure, I have no credit cards. Please guide me in the right direction. I really appreciate the assistance. Thank you, PM
Bills.com
March 26, 2011
Joint accounts create more problems than they solve, as your anecdote illustrates painfully. Accordingly, I advise readers to avoid joint accounts of all types. If two (or more) people need to exchange money, I suggest they open separate accounts at the same credit union or bank and set up that institution's mechanism for making transfers between accounts.

Regarding your question, review the loan contract you signed with Wells Fargo for the HEL. Does it explain Wells Fargo reserves the right of offset? If so, you have no recourse against Wells Fargo. If not, take your contract to a lawyer who has experience in consumer law. If you cannot afford an attorney, call your county bar association and ask for the name of the organization in your area that offer no-cost legal services to people with no or low income. Make an appointment with that organization and bring all of the documents you have regarding the mortgage and HEL to your meeting. The lawyer you meet will review your documents and advise you accordingly.
Pat S.
Cape Coral, FL  |  March 12, 2011
My issue revolves around Suncoast Schools Federal Credit Union - based in Florida where I have a 2nd mortgage that is in dispute. My MOTHER also has an account at Suncoast for her Long Term Care Insurance, a few CD's etc... not her primary account, but I am a signer on the account, since she is elderly. She received a letter yesterday that indicated her accounts had been wiped out (over $8,000! ALL of her savings) based on their "Right of Offset" to transfer funds from her account to an account on which your joint owner is primary or joint owner. They did not specify WHICH loan. Aren't many children signers on their parents accounts in case they become incapacitated? Do you know that by being so - you place your elderly parent at risk???? Is this LEGAL? How can it be so? I now owe my MOTHER $8,000+ that Suncoast Schools Federal Credit Union STOLE from her! Obviously, I have no way to reimburse her (having been unemployed for 2 years now), and this will cause her long term care insurance to lapse.
Daniel G.
Roanoke, TX  |  February 23, 2011
I live in Texas and had two Chase checking accounts. My employer bounced a check on me causing a debit balance in one account. I told Chase I would have it paid in about a month. The debit balance was approximately $110. About 4 weeks later, after I'd scheduled several bills to be paid, Chase did an offset to the account with the credit balance, causing over $300 in NSF Fees. When their offset amount showed up on my statement, it was backdated to the day before I issued the on line payments. Also note that their system will not allow you to schedule payments if the funds are not in the account. I am now blacklisted from getting a checking account because of this. I received no notice that they were going to offset an account, and had the entry not been backdated, the account would still have had a credit balance with the debit balance account being paid in full. My questions are: 1. Was this legal? 2. Where can I find the statutes governing offsets? 3. Are there specific circumstances involving offsets that are designated by law as bad faith transactions? Thanks Bill!
Bills.com
February 23, 2011
JP Morgan Chase is a national bank, and is not supervised, licensed, or registered by the Texas Department of Banking. The Federal Reserve Board (FRB) oversees some aspects of banking. In July 2010, the FRB set new rules for new overdraft rules for checking accounts and ATM cards. See the FRB page All Regulations and select Regulation E. To register a complaint for a national bank, go to the Federal Reserve How to File a Consumer Complaint About a Bank page.
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Judy C.
Brea, CA  |  March 01, 2011
For credit unions in the state of California and subject to the credit union's internal policies, I was under the impression that on a delinquent real estate loan, one right of offset (or one action) is allowed. I also understood that credit card right of offset was only allowed if the member had signed a specific pledge of shares for the credit card account. I was also under the impression that the right of offset could be used multiple times on non-real estate consumer loans (excluding credit cards as stated above). Is this correct? Thank You for your response.
Bills.com
March 01, 2011
The devil is in the details, Judy. In your case, the terms of your account agreement with your credit union, as well as the laws in California, will determine which of your accounts the credit union can come after for a delinquent mortgage loan. I recommend that you speak with an attorney who is experienced with contract law.
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Judy C.
Brea, CA  |  March 07, 2011
Hi Bill, Thanks foir the response. I know that there is only one fight of action on real estate loans. But for unsecured loans and lines of credit and auto loans, our Agreement states that members pledge all shares (eligible under the law)for all loans (we have a cross-collateral clause as well). It does not state that we shares may only be transferred one time over the course of the loan. I believe we are allowed to transfer shares any time the loan is delinquent throughout its life and that is what I am trying to get an answer on. Thanks!
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