Topic: Right of Setoff
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One of our customers recently died, and the customer had an outstanding credit card balance and a deposit account with our institution. Can we place a hold on the account in the amount of the credit card balance? We have not obtained a security interest in the deposit account.
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No, you will not be able to place a hold on the deposit account. The Regulation Z prohibition on offsetting deposit account funds against consumer credit card debts — with certain exceptions that do not appear to apply in this situation — also applies to freezing or placing a hold on deposit account funds. For…
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A check-cashing company has been depositing out-of-state IRS tax refund checks in its account at our institution. One of the payees on the checks told us that he never cashed the check and that he will be filing a complaint with the IRS. What are the chargeback rights of the IRS and what is its look-back period?
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The general rule is that the IRS may reclaim the amount of a check payment from a guarantor of the check until the end of the one-year period beginning on the date that a check is processed for payment by a Federal Reserve Processing Center. If the IRS determines that a guarantor of the check…
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If we believe the customer initiated a false debit card dispute (based on information provided to us by the police), can we offset the customer’s deposit account to recover the final credit we provided under Regulation E? The debit card has no credit or overdraft features.
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We believe that you may set off the customer’s deposit account in the amount of the credit that you provided to the customer under Regulation E. While Regulation Z places some limits on the right of offset for credit cards, those limitations do not apply to debit cards that lack any credit or overdraft features.…
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We received a tax refund by ACH transfer for a grandson, who directed the tax refund into an account owned by his grandmother. The grandson has no ownership interest in the account, but he is behind on a loan he has with our institution. Can we exercise a right of setoff against the amount of the tax refund?
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First, we must note that the IRS rules prohibit the recipient of a tax refund from depositing the refund into an account that the recipient does not own: “You can direct your refund to any of your checking or savings accounts, but you cannot direct your refund to someone else's account, except for your spouse's…
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How does the right of setoff work under Illinois law? Which types of accounts are subject to our right of setoff? If a deposit account is held jointly, could we setoff the account funds against a loan made to one of the individuals who owns the joint account?
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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…
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Can the bank exercise its right of set off against former customers with charged-off accounts when they request credit card cash advances from the bank?
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In Illinois, banks can exercise the right of setoff only against deposit accounts held at the bank, and only if certain requirements are met: either (1) the deposit contract allows for a right of setoff or the deposit accounts are owned by the same party (or parties) that owe the debt, and (2) the debt…
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Can we use a demand deposit account (DDA) as collateral for a loan?
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First, we note that the Regulation Z disclosure you mentioned would not apply to a business loan. 12 CFR 1026.1(c)
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If we receive a writ of garnishment asking us to report all of a customer’s property, should we list the land trusts for which the customer is beneficiary and trustee?
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In our view, your response to the writ of garnishment should identify the trust’s deposit account, as well as the bank’s loans to the trust, for the reasons described below. The trustee of a land trust holds both legal and equitable title to the property in the trust, and the beneficiary has a personal property…
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Can we exercise a right of offset in a customer’s deposit account after receiving a notice of lien from the Illinois Department of Healthcare and Family Services (IHFS)?
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If your bank had a right of set-off prior to the IHFS lien, your bank’s right of set-off would trump the IHFS lien. The Illinois Public Aid Code makes such liens (for past-due child support) subordinate to a bank’s prior rights of set-off: “(h) A lien created under this Section is subordinate to . .…