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?

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?

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Bill's Answer
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  • Understand that federal law regulates a bank's right to offset.
  • Be aware that the laws may vary for Credit Unions.
  • Consult with an attorney, to find out your state's laws about the right of offset.

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

53 Comments

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  • MJ
    Jan, 2012
    Mark
    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
    0 Votes

    • BA
      Jan, 2012
      Bill
      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.
      0 Votes

    • MJ
      Jan, 2012
      Mark
      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.
      0 Votes

    • SC
      Feb, 2012
      Steve
      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.
      0 Votes

    • MJ
      Feb, 2012
      Mark
      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.
      0 Votes

    • DM
      May, 2012
      David
      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.
      0 Votes

  • TY
    Nov, 2011
    Tim
    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.!
    0 Votes

    • BA
      Nov, 2011
      Bill
      Consult with a lawyer in CO who deals in commercial litigation, who will be able to deal with the specifics of your case.
      0 Votes

  • DW
    Oct, 2011
    dan
    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?
    0 Votes

    • BA
      Oct, 2011
      Bill
      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.
      1 Votes

    • DM
      Feb, 2012
      David
      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?
      0 Votes

    • BA
      Feb, 2012
      Bill
      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.
      0 Votes

  • MW
    Sep, 2011
    Michelle
    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.
    0 Votes

    • BA
      Oct, 2011
      Bill
      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.
      0 Votes

  • DC
    Sep, 2011
    Diane
    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?
    0 Votes

    • BA
      Sep, 2011
      Bill
      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.
      0 Votes