We believe that the bank can exercise its right of setoff against any deposit account, if it is provided for in the account agreement with the customer. And, depending on the language in your deposit agreements, Illinois law may also permit the bank to exercise a right of setoff against a jointly-held deposit account, even if a loan is taken out by just one of the joint deposit account owners.

Under Illinois law, the right of setoff can arise under the common law or under a contract with the customer (generally the account agreement). Under the common law right of setoff, the deposit account to be set off must be owned by the same party or parties that owe the debt to the bank. But under a contractual right of setoff, the account agreement can provide for a broader right of setoff, and there is no requirement that the identities of the account owner(s) exactly match the identities of the debtor(s). And, whether a bank is pursuing a common law or a contractual right of setoff, the debt must have matured before the bank can exercise its rights. Selby v. DuQuoin State Bank, 223 Ill.App.3d 105, 107 (5th Dist. 1991) (the right of setoff allows a bank to “apply its depositor’s account for a debt he owes to the bank”); Fisher v. State Bank of Annawan, 163 Ill.2d 177, 181 (1994).

If the bank pursues a right of setoff under an account agreement, it would still have to meet any requirements in the agreement, but we are aware of at least two cases in which a court allowed a bank to set off jointly held funds to satisfy an individual account owner’s debt. In the Fisher case, the court held that a bank could set off certificates of deposit (CDs) held jointly by a father and his sons to satisfy a debt of one of the sons. The court relied on the bank’s CD account agreements, which provided that “this institution may deem and treat as the absolute owner hereof any one depositor,” meaning that each of the joint owners was treated as owning the CDs individually. In the Selby case, the account agreement language was even stronger, as it specifically stated that the joint account funds could be used to set off the debts of either of the account owners (a point made by the dissenting opinion in the Fisher case). Below is the full account provision at issue in the Fisher case:

SET-OFF: Lender may, at any time before or after Default exercise its right to set-off all or any portion of the indebtedness of the Lender to the Borrower (whether owned by the Borrower alone or in conjunction with any other person or entity, provided that the Borrower has a beneficial interest therein) without prior notice to the Borrower. This right applies to and includes but is not limited to any funds on deposit with the Lender, provisionally, in escrow (subject to the terms of any special agreement therefore) for collection, or in any time or open accounts.