IBA Compliance Connection

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If we have charged off and closed an account, can we re-open the account to use a direct deposit (a non-government deposit) to offset the amount of the charge off?

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No, we do not believe that your bank may re-open the account to exercise a right of setoff in this situation.

While your deposit account agreement likely provided for a right of setoff relative to funds your former customer had on deposit, that customer no longer has a deposit account or funds on deposit, precluding a right of setoff. In addition, we believe that it could be viewed as unfair, deceptive, or abusive to re-open a customer’s account without their knowledge in order to lay claim to their funds.

For resources related to our guidance, please see:

  • Consumer Financial Protection Act of 2010, 12 USC 5536(a) (“It shall be unlawful for (1) any covered person or service provider . . . (B) to engage in any unfair, deceptive, or abusive act or practice.”)