IBA Compliance Connection

Your go to source for compliance!

We had a joint deposit account that received social security administration (SSA) payments, and the SSA recipient recently died. One SSA payment posted to the account after the recipient’s death, and we must return that payment to Social Security. The surviving joint owner closed the account after most of the account funds were withdrawn (the joint owner claims that the withdrawals were unauthorized, but we disagree). The surviving joint owner does hold an individual account at our institution. Can we reclaim the SSA payment from that account? We believe that the account agreement for the individual account provides us with a right of setoff for debts owed to us by the account owner.

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Yes, we believe that you may exercise your contractual right of setoff in the funds held in the individual deposit account. The surviving joint accountholder agreed in your deposit account agreement that your bank could setoff account funds for debts. The surviving joint accountholder owes your bank a debt — the amount reclaimed by the Social Security Administration.

Several Illinois cases have upheld a bank’s contractual right of setoff, and one example is linked to below.

  • Selby v. DuQuoin State Bank, 223 Ill.App.3d 105, 109 (5th Dist. 1991) (“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.”)