Yes, we believe that your bank would have a valid right of setoff in the second account. From what you have told us, your deposit account agreement provides for a contractual right of setoff, and both accounts have identical ownership.

We note that the second account may contain some social security benefit payments that have been transferred from the first account. However, that should not prevent your bank from setting off that account to cover an overdraft. While the Social Security Act prohibits social security benefit payments from being “subject to execution, levy, attachment, garnishment, or other legal process,” federal courts have held that a bank does not violate this prohibition by setting off account overdrafts against deposited social security benefits.

However, we should note that an account containing social security payments should not be used to setoff a debt other than an overdraft, such as a delinquent loan payment.

For resources related to our guidance, please see:

• 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.”)

• Social Security Act, 42 USC 407 (“The right of any person to any future payment under this title shall not be transferrable or assignable, at law or in equity, and none of the moneys paid or payable or rights existing under this title shall be subject to execution, levy, attachment, garnishment, or other legal process or to the operation of any bankruptcy or insolvency law.”)

• FRB Philadelphia, Compliance Corner, Compliance Alert: Attachment and Right of Setoff of a Bank Account Receiving Social Security Benefits (Fourth Quarter 2007) (“In light of recent court decisions, the answer appears to be that the bank can exercise the right of setoff against an account receiving social security benefits if the debt to the bank arises out of the account. For example, in the recent case of Wilson v. Harris Bank N.A., 2007 U.S. Dist. LEXIS 65345 (N.D. Ill. Sept. 4, 2007), a customer’s checking account was overdrawn because of allegedly unauthorized debit card transactions. The bank also assessed overdraft fees because the transactions exceeded the balance in the account. . . . The United States Court of Appeals for the Ninth Circuit reached a similar conclusion in Lopez v. Washington Mutual Bank, 302 F.3d 900 (9th Cir. 2002). . . .”)

• Wilson v. Harris N.A., 2007 WL 2608521, *10 (N.D. Ill. 2007) (“Notably, other courts have concluded that § 407 [of the Social Security Act] does not prohibit a bank from using Social Security funds to pay overdraft fees pursuant to a voluntarily-entered account agreement.”)

• Lopez v. Washington Mutual Bank, 302 F.3d 900, 904 (9th Cir. 2002) (“Although Nelson was actually construing 38 U.S.C. § 5301(a), which protects veterans’ benefits from creditors, we expressly noted the similarity to Section 407(a) and relied upon Social Security cases to reach the result. Id. at 895. . . . However . . . we agree with the district court that no violation of Section 407(a) occurred in this case because there is simply no indication that the plaintiffs did not voluntarily agree to apply their SSI benefits in such a fashion.”)