'Reverse Bank Heist' Stuns Customers Late On Loan Payments

Guest Opinion

BY ERIK WESOLOSKI

(Editor's note: Views expressed in this column are those of the writer and do not necessarily reflect the views of CondoVultures.com.)

The other day a client literally ran into my law firm, visibly shaken. He asked to see me immediately. My secretary whisked him into my office and before he even took a seat, he exclaimed that $6,000 had disappeared from his checking account.

I asked him to show me the bank statement, and a debit was reflected as going directly to the same bank. I asked him whether he was delinquent on any loans owed to the same bank. He said that he was six months late on an equity line of credit on his home which was owed to the same bank where he had his checking account.

This debit which looks and feels like a reverse bank heist, is actually legal, and it is called a set-off. A bank has a right to remove funds on deposit in an account at the same bank as a set-off against delinquent obligations owed by the depositor to the bank. This set-off right is supported by statute, common law and case law precedent. There are certain exceptions to a set-off but these exceptions are generally limited in scope to escrow accounts, also called special-purpose accounts.

Moral of the story: if you are delinquent on a car loan, mortgage loan or even a credit card to a bank where you also have a checking account, move the money in your checking account to another bank immediately!

The set-off right does not extend to deposit accounts at other banking institutions. Generally, for a bank to collect monies from a debtor who has funds in another bank’s deposit account, the bank must obtain a civil court judgment and subsequent to that, the bank must obtain an order for writ of garnishment.

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