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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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Highlights

  • 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

59 Comments

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  • AL
    Mar, 2014
    Adi
    I have a question about Wells Fargo... They have recently used the "Right to Offset" and taken money out of my Wells Fargo Business Checking Acct to pay off a delinquent Wells Fargo Business Credit Card. I read your article and I am unsure, but is this something they can do? Nobody ever notified me and my account shows it was a telephone transaction. When I called, all they had to say was that it was done. Nobody has given me an answer as to why they can do this. Please help!!
    0 Votes

    • BA
      Mar, 2014
      Bill
      It depends on the language in your account agreements. It is my guess that there is language that allows Wells Fargo to assert a right of offset. A lawyer could examine your account agreement documents and offer an authoritative opinion.
      0 Votes

  • LK
    Feb, 2014
    Lauren
    Hi. My dad lives in Florida and is 78. He got behind in his bills. Lives in poverty conditions. He gets $1000 a month between Social Security (direct deposit) and disability. He has a mortgage and equity line at Bank of America. He had $2000 in a checking/debit account, from last 2 months of benefits. Bank of America took all his funds today. He has no money, not even for food. Electric and water were previously shut off, and he was just getting someone to help him pay his basic bills,and $$ was used for bare necessities. Now there is no money to turn on electricity or water. Can the bank legally seize these funds thru right of offset? He was overdue on mortgage and equity line at Bank of America. Can they take his Social Security/disability income? Thank you.
    0 Votes

  • ER
    Sep, 2013
    Eric
    I've taken over of the estate now that my dad has passed on. There are several credit cards with some debt who I would simply like to inform that the owner has passed on and they have to eat the debt. However, the bank for one of the cards holds our mortgage, and my service rep (at another bank) mentioned that I need to be careful because the bank may simply put a lien on my home for my father's credit card debt. Should I refi with another bank first or liquidate the estate or what? I'd like to protect my house from my father's unsecured debt and would rather just blow them off and keep my inheritance for my family.
    0 Votes

    • BA
      Sep, 2013
      Bill
      I don't see the right of offset as being an issue here.

      You oversimplify the probate process and your duties as the executor/administrator/conservator of the decedent's estate. Follow the hyperlink I just mentioned to learn more about the probate process in general. You indicated you reside in California, and I will make a big assumption that your father was a California resident, too. See the Sacramento Library's Decedents' Estates page to learn more about California's probate laws.

      Should you fail to follow the probate laws in the state where your father resided, it is possible for creditors to file a lawsuit against you as the executor/administrator/conservator for failure to comply with the law in the discharge of your duties. If the court agrees, you could have personal liability for the estate's debts.

      My advice? Consult with a probate lawyer in the state where your father resided, so that you get a complete understanding of your duties as executor/administrator/conservator, the probate laws in that state, and the possible consequences for failure to follow state probate laws.
      0 Votes

  • 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