Topic: Right of Setoff
-
Are there any restrictions on exercising a right of setoff from a jointly owned deposit account where only one of the account owners owes the bank a debt? For example, if a customer is the sole owner of an overdrawn deposit account, can we exercise a right of setoff against another account the customer has at our bank that is jointly owned with their spouse, child, or anyone else?
—
by
We recommend reviewing your account agreement for the jointly held account to determine whether it grants a right of setoff that allows your bank to use the account funds to pay the debt of any account owner. If so, we believe you can exercise a right of setoff against a joint account where only one…
-
When exercising a right of setoff for an overdrawn deposit account, can we include overdraft fees in the amount recovered? Is this permissible if the only amounts we are recovering are for overdraft fees? Also, is there a statute of limitations on recovering overdrawn balances? For example, if an account with a negative balance was closed and charged off but the customer currently has funds in other accounts with our bank, can we use these funds to set off the amount that was charged off?
—
by
Right of Setoff for Overdraft Fees We recommend reviewing the terms of your account agreement to determine whether you have a right of setoff that includes the collection of overdraft fees. In Illinois, the right of setoff can arise either contractually (when an agreement provides for a right of setoff) or under common law (when…
-
Our safety deposit box contract states that in cases of delinquencies, we may debit any of the customer’s accounts and access our customers’ boxes to collect their contents to satisfy delinquent rental payments, provided that we give our customers thirty days’ notice. What Illinois law or regulation allows this practice?
—
by
We believe that Illinois law would allow a bank to apply a valid right of setoff to recover delinquent safety deposit box rental payments. Illinois courts have long confirmed banks’ setoff rights, which can arise either contractually (when a loan agreement or account agreement provides for a right of setoff) or under common law when…
-
Illinois has issued income and property tax rebates to some of our consumer customers through ACH transfers. Some of the deposit accounts these ACH transfers have been directed to are already closed. Can we use these rebates to offset customers’ outstanding loan payments and overdraft fees? We assume we will need to return the payments for closed accounts but would like to confirm that we can use the rebate amounts for accounts that are open.
—
by
We believe that rebates that have been credited to currently active consumer deposit accounts at your bank may be subject to your bank’s right of setoff. However, we do not believe your bank may exercise a right of setoff in funds directed to accounts that have been closed. Under Illinois law, the right of setoff…
-
Can a consumer loan guaranty agreement include language allowing us to exercise a right of setoff in a guarantor’s deposit accounts? We want to extend an unsecured personal loan to a trustee with the trust as the guarantor, and we want to reserve a right of setoff in the trust’s deposits.
—
by
Yes, we believe you may include language in a guaranty agreement allowing your bank a right of setoff in the guarantor’s deposits at your bank and that a trustee may pledge trust property to guarantee loans made to the trustee — provided that both activities are within the trustee’s powers, as confirmed by a certification…
-
We received a notice of lien from the Illinois Department of Healthcare and Family Services (HFS) indicating that we should put a hold on the checking account of a customer who owes unpaid child support. The amount of the unpaid child support is approximately twice the funds in the account. Should we freeze the entire account or only the funds currently in the account?
—
by
We recommend freezing the entire account up to the amount indicated in the notice of lien. The Illinois Public Aid Code authorizes HFS to serve notice of liens for past-due child support to financial institutions where the responsible payor has an account for “encumbrance or surrender” of the account by the financial institution. If HFS…
-
Is there any Illinois law that would prevent banks from deducting overdraft fees from child tax credit payments? We are aware that child tax credit payments generally are subject to garnishment.
—
by
We are not aware of any Illinois law that would prevent your bank from deducting an overdraft fee from a child tax credit payment — provided your account agreement allows for the setoff of overdraft fees. The IRS has published guidance confirming that advance child tax credit payments are not exempt from garnishment by non-federal…