We recommend reviewing your bank’s agreement with the customer that authorizes the automatic loan payments. If it provides that the customer’s debit authorization expires when the customer dies, your bank should cease debiting the loan payments.
If your agreement is silent on this issue, your bank may be able to continue debiting the loan payments. While the Uniform Commercial Code restricts the payment of checks after ten days have passed from the bank’s knowledge of a customer’s date of death, it does not impose similar restrictions on other methods of payment types, such as ACH transfers that are governed by the NACHA rules. (Needless to say, such automatic debits could not continue indefinitely; for example, absent any contact from the customer’s estate, the account would be deemed inactive and thus unclaimed property in Illinois two years after the customer’s death.)
Another solution might be to exercise your bank’s right of setoff in the checking account. Under Illinois law, the right of setoff can arise either contractually (when a loan agreement or account agreement provides for a right of setoff) or under common law when there is “mutuality” of parties (the account is owned by the same party that owes the matured debt to the bank). Your checking account agreement may authorize your bank to set off the deposit accounts against monies owed to the bank. And even if your account agreement is silent on this issue, we believe you can exercise your common law right of setoff — provided that the customer was the sole owner on the checking account and was the sole borrower on the loans, which likely will have matured by their terms due to the borrower’s death.
For resources related to our guidance, please see:
- Uniform Commercial Code, 810 ILCS 5/4-405(b) (“Even with knowledge [of a customer’s death], a bank may for 10 days after the date of death pay or certify checks drawn on or before that date unless ordered to stop payment by a person claiming an interest in the account.”)
- Illinois Revised Uniform Unclaimed Property Act, 765 ILCS 1026/15-201 (“. . . . Notwithstanding anything to the contrary in this Section 15-201, and subject to Section 15-210, a deceased owner cannot indicate interest in his or her property. If the owner is deceased and the abandonment period for the owner’s property specified in this Section 15-201 is greater than 2 years, then the property, other than an amount owed by an insurance company on a life or endowment insurance policy or an annuity contract that has matured or terminated, shall instead be presumed abandoned 2 years from the date of the owner’s last indication of interest in the property.”)
- Symanski v. First Nat. Bank of Danville, 242 Ill.App.3d 391, 396–397 (4th Dist. 1993) (“There are two bases on which defendant could assert a right of setoff . . . . Under common law, a bank has the power to apply the deposit to the payment of such depositor’s indebtedness only when there are mutual demands and debts between the parties, and this right of setoff arises at the time the depositor’s indebtedness to the bank has matured. . . . As evidenced by our previous discussion, parties can contractually agree to a right to set off.”)
- Selby v. DuQuoin State Bank, 223 Ill.App.3d 105, 108 (5th Dist. 1991) (In a case where a bank set-off a debt owed by a joint deposit account owner who had died, “a plain reading of the set-off provision of the signature-card agreement indicates to this court that the Bank asserted a right to set off each depositor’s debts or obligations owing to the Bank against the deposit account and that each depositor recognized this right of the Bank to set off either depositor’s debts against the joint account. . . . because the joint depositors, Smith and plaintiff, agreed that the Bank’s right of setoff applied to the joint account for a debt or obligation owing by either of them, the Bank’s setoff of these funds was proper.”)