Right of Offset. How safe is Your Money in Your Own Checking Account?
If you deposit funds into a bank where you have a car loan, credit card, mortgage or any other debt, you likely have what’s called a “banking conflict”. You are housing assets where you also have liabilities and more often than not, the “right of offset” will apply. This means that if you have a depository account with funds available and for some reason do not pay these bills, the depository institution will have the legal right to freeze and seize any funds available to offset monies due to them.
While all banking institutions, as permitted by state law, have the “right of offset” and may use it to collect on delinquent secured loans, i.e. automobile loans, not all institutions may collect on unsecured or open-ended revolving accounts. For example, federally chartered banks, such as Bank of America, Wells Fargo, J.P. Morgan Chase, etc. may not use “right of offset” to collect on delinquent credit card balances, but federally or state chartered credit unions have the freedom to do so. The important thing to remember is that if you are unsure of your banks policy or practices with regard to “right of offset”, it is very important that you pull out those contracts and read the fine print. If there is any question, MOVE YOUR MONEY. It doesn’t take much effort to change who you bank with, but the effort to get your money back when things go very wrong will be overwhelming and more often than not, you will just be out of luck!
This can happen to you:
- A husband and wife recently realized that they would no longer be able to make their $625.00 truck payment and still make their mortgage payment on time. After careful deliberation and a brief discussion with their credit union which holds their car loan, they were told that they could return their 2008 Ford Super Duty to a local dealership and avoid the repossession on their credit report. It wasn’t long before they took the truck down to the dealership and then called the bank to inform them that it was there.
The very next morning, the wife noticed that all of their bank accounts with their credit union were empty. Every dime that had been saved for a long deserved family vacation, emergency lunch money, or any other need was gone.
Not only did the bank not tell them that the surrender of the vehicle would be treated exactly like repossession and that they would owe a deficiency balance on the account, they were not informed of the banks right to offset the remaining balance owed after the vehicle is sold. In most cases, the consumer is not notified when “right of offset” is applied. They are only informed when an explanation is need as to why their money is missing from their account.
Get back to basics. Never bank with an institution that you owe money. You know what they say about best intentions and best laid plans. Life happens and when it does, you want to be prepared.
3 Responses to “Right of Offset. How safe is Your Money in Your Own Checking Account?”
Leave a Reply
January 25th, 2010 at 9:02 am
If you have three mortgages on three seperate properties, two in NC one in SC, two of the properties are current and one is in default, can the bank - 53rd - foreclosue on the current properties as well. If they come after us for the outstanding balance on the foreclosed note, can they then take either of the other properties. Does Right of Offset apply to mortgages. I do not bank with 53rd.
April 12th, 2010 at 4:36 pm
Really what you are talking about is cross-collateralization and not right of offset. Unless you actually were notified of 5th Thirds ability to cross-collaterlize your properties at the time you signed your title paperwork, it is unlikely that they have that option. This is seen more with federal credit unions and not major banks. Usually, the result of a foreclosure would be a balance deficiency. In many states, balance deficiencies on mortgages are not allowed to be collected and in return are written off as bad debt. In those cases, you may or may not have a tax implication worth speaking about with your tax advisor.
May 10th, 2010 at 1:11 pm
Can anyone point be to where the law is that federally chartered banks can\’t use offset on credit card balances? Wells Fargo just did this exact thing to me.