“Right of offset” – Protect your money and assets
What is the “Right of Compensation”?
The “Right of Set-off” gives a lending institution (i.e. bank or credit union) a legal right to sixteen funds that a debtor may have in a deposit account or asset at that particular banking or financial institution, to cover a delinquent loan. It is also known as the “Right of Offset”.
What are the dangers of the “Right of Compensation”?
If an individual, couple, or other entity has a checking, savings, or other form of deposit account at the same financial institution as a credit card, car loan, mortgage, or other debt account, that individual or entity has what can be considered a “banking dispute”. In other words, any time an asset account is held in the same banking institution as a liability account, a potential “banking dispute” occurs due to the “right of offset” of that banking institution. What this means is that if a person, for whatever reason, fails to make payments into a liability account, the financial institution has the legal right not only to freeze that person’s asset/deposit account, but also to seize the funds available to offset overdue debt. to that financial institution.
What types of liability accounts or debts does the “Right to Offset” also belong to?
The freedom of a financial institution to use the “Right of Offsetting” is primarily determined by how they are licensed.
State-chartered and regulated credit unions and banks, along with federally-chartered and regulated credit unions by the National Credit Union Association (NCUA), have the freedom and the authority to exercise your “Right of Offset” on both secured and asset-backed accounts (i.e. mortgage loans, car loan) and unsecured (not backed by collateral) accounts or open revolving accounts (i.e. certain credit cards credit and credit extensions).
Federally licensed and regulated banks (ie Bank of America, Wachovia Bank, Wells Fargo) have the freedom and authority to exercise their “Right of Offset” on secured, but not unsecured, accounts. The rights and authority of a bank/financial institution with respect to its use of the “Right of Offset” may vary between institutions. To find the details of a particular institution, research the following areas:
- The regulatory authority of the institutions.
- The institution member agreement received when establishing an account.
- The institution’s loan/debt documents or agreements received when establishing a loan.
Who regulates state and federally chartered banks and/or financial institutions?
State-chartered banks and financial institutions are regulated by the Department of Banking, Department of Financial Institutions, or Department of Finance of the particular state from which the bank or financial institution conducts business.
Federal credit unions are regulated by the National Credit Union Association (NCUA).
Federally chartered national banks are regulated by the Office of the Comptroller of the Currency (OCC). The OCC is an office of the United States Department of the Treasury.
How can I protect my assets?
Never assume it won’t happen to you. Difficulties in today’s economy have created unexpected layoffs and job losses. Extensive medical emergencies occur every day. Take the following steps to protect yourself:
1) Separate your accounts. Keep your asset and deposit accounts with institutions that are not related or affiliated in any way with financial institutions where you have loans or debt obligations.
two) Monitor who owns your mortgage note. Mortgage notes are bought and sold every day on the secondary market. Make sure a financial institution where you have your assets or deposit accounts doesn’t buy your mortgage note. If this happens, move your assets immediately to another institution.
3) Do not keep your investment account in institutions where you have debts. A bank or financial institution will try to collect your money by any means possible. They have teams of attorneys on retainer who are constantly looking for new ways to collect. As with any regulation, there are always “loopholes.” Don’t put yourself in a position to be the example.
In closing, do your best to pay your bills on time. The “correct and fair” people who will say that you just need to honor your debts and pay your bills on time. These are the same people who scream the loudest when they find themselves in unexpected financial difficulty and discover that a financial institution has “offset” their bill leaving them without money for food or gas. There are no absolutes in life, so plan accordingly. A few proactive adjustments to the way you bank now can save you a lot of potential hassle down the road.
