Right of Offset

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Mark Cappel

UpdatedSep 20, 2024

Key Takeaways:

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.
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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?

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

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Debt statistics

Debt is used to buy a home, pay for bills, buy a car, or pay for a college education. According to the NY Federal Reserve total household debt as of Q1 2024 was $17.69 trillion. Auto loan debt was $1.62 trillion and credit card was $1.12 trillion.

A significant percentage of people in the US are struggling with monthly payments and about 26% of households in the United States have debt in collections. According to data gathered by Urban.org from a sample of credit reports, the median debt in collections is $1,739. Credit card debt is prevalent and 3% have delinquent or derogatory card debt. The median debt in collections is $422.

Collection and delinquency rates vary by state. For example, in Missouri, 16% have student loan debt. Of those holding student loan debt, 8% are in default. Auto/retail loan delinquency rate is 5%.

To maintain an excellent credit score it is vital to make timely payments. However, there are many circumstances that lead to late payments or debt in collections. The good news is that there are a lot of ways to deal with debt including debt consolidation and debt relief solutions.

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10 Comments

AAlan Pontes, Feb, 2023

Bank of America just took almost $2,900 dollars from my personal checking to offset my business creditcard debt without my consent. Ive called and callled telling them that i need the money back and they just say they cant give it back. What do i do? Can they even do this?

TTed, Feb, 2023

Alan, I understand that Bank of America is Federally charted so law restricts them from using right to offset for revolving credit accounts. However, you mentioned this was to supplement business credit card debt. This may be an exception. I would recommend to speak with an attorney for further clarification.

JJason Scandling, Oct, 2022

According to the Office of the Comptroller of Currancy, Federal law restricts national banks from using right of offset to payoff consumer credit card debt. As I read through the posts in this discussion, it appears this restriction only applies if there is no clause in the cardholder agreement granting the bank's right to offset for consumer cards. If this is correct, what is the point of having federal laws that protect consumers if the banks can write there own permission slip to get around it? If this clause was not included in the original cardholder agreement, but was later added as an addendum, was I ever truly given an opportunity to opt out of such a change to my cardholder agreement? I bank with Wells Fargo, which obtained a Judgement for my revolving consumer credit card debt, and in exercising its right of offset my checking account was debited $1,545.30, which left $1000 in the account. My unemployment benefits will be exhausted next month and the money that was in the account came from a NetSpend loan I obtained at 37% interest to pay my rent ($3,250/Mo). Wells Fargo debited the account the same day the loan funded. Are there no restrictions on the extent to which a bank can exercise its rights. I've banked with Wells Fargo for over 30 years, this is shameful, and if it's legal it should not be.

AAmanda, Dec, 2022

Did you get this resolved, I am dealing with this now

JJerry, Nov, 2019

My bank took money out of my LLC account. For a personal loan I had in my name not the LLC. That is against the rules, correct? An LLC is its own entity.

DDaniel Cohen, Nov, 2019

You asked your question on a page we have about the right of offset. It could be that there is language in the account agreements you have wtih the bank that gives it the authoirity to collect a debt owed for the corporate account from your personal account. You need to speak with a lawyer and show him or her the two account agreements or ask if there is another reason the bank has claim to your private account for the corporation's debt.

AAdi, Mar, 2014

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!!

BBill, Mar, 2014

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.

LLauren, Feb, 2014

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.

BBill, Feb, 2014

Help your father find a Florida lawyer immediately. Contact Florida Legal Services or another Florida pro bono program to find an organization that will help him at no cost.