What is the “right of set-off”?

The “Right of Setoff” gives a credit institution (ie a bank or credit union) a legal right to sixteen funds that a debtor may have in a deposit or asset account at that bank or financial institution in in particular, to cover a delinquent loan. It is also known as the “right to set off”.

What are the dangers of the “right to compensation”?

If a person, couple, or other entity has a checking, savings, or other form of deposit at the same financial institution where they have a credit card, car loan, mortgage, or other debt account, that person or entity has what it can be considered a “banking dispute”. In other words, every time an asset account is held in the same banking institution as a liability account, a possible “banking dispute” occurs due to the “right to set off” of the banking institutions. What this means is that if a person, for whatever reason, fails to make payments to a liability account, the financial institution has the legal right to not only freeze that person’s deposit / asset account, but also sixteen. funds available to repay the debt owed. to that financial institution.

To what types of liability or debt accounts does the “right to set off” also apply?

The freedom of financial institutions to use the “right to set off” is mainly determined by the way in which they are authorized.

Banks and credit unions licensed and regulated by the state, along with federal credit unions licensed and regulated by the National Association of Credit Unions (NCUA) have the freedom and authority to exercise their “right to set off” both on secured accounts such as backed assets (ie, home loans, auto loan) and unsecured accounts (not backed by collateral) or open revolving accounts (ie, certain credit cards and extensions of credit).

Federally licensed and regulated banks (ie Bank of America, Wachovia Bank, Wells Fargo) have the freedom and authority to exercise their “right to set off” on insured accounts, but not without collateral. The rights and authority of a bank / financial institution regarding its use of the “Right to Set off” may vary between institutions. To find the details of a particular institution, research the following areas:

• The regulatory authority of the institutions.
• The institution member agreement received when establishing an account.
• Institutional loan / debt documents or agreements received when establishing a loan.

Who regulates banks and / or financial institutions authorized by the state and by the federal government?

State-licensed banks and financial institutions are regulated by the Department of Banking, Department of Financial Institutions, or the Department of Finance of the particular state from which the bank or financial institution conducts business.

Federal credit unions are regulated by the National Credit Union Association (NCUA).

Federally authorized national banks are regulated by the Office of the Comptroller of the Currency (OCC). The OCC is an office of the United States Department of the Treasury.

How can I protect my assets?

Never assume it won’t happen to you. The current difficulties in today’s economy have created unexpected layoffs and job losses. Costly medical emergencies happen every day. Take the following steps to protect yourself:

1) Separate your accounts. Maintain your asset and deposit accounts with institutions that are in no way related or affiliated with financial institutions with which you have loans or debt obligations.

2) Control who owns your mortgage note. Mortgage notes are bought and sold every day on the secondary market. Make sure that a financial institution with which you keep your assets or deposit accounts does not buy your mortgage note. If this happens, move your assets immediately to another institution.

3) Do not keep your investment account in institutions where you have debts. A bank or financial institution will try to collect your money by any means possible. They have teams of upfront attorneys constantly looking for new ways to get paid. As with any regulation, there are always “loopholes”. Don’t put yourself in a position to be the example.

Finally, do your best to pay your bills on time. The “right and straight” people who will say you just need to honor your debts and pay your bills on time. These are the same people who scream the loudest when they find themselves in unexpected financial difficulty and discover that a financial institution has “offset” their account by leaving them without money for food or gas. There are no absolutes in life, so plan accordingly. A few proactive adjustments to the way you handle your banking now can save you a lot of difficulties in the future.