What is the "Right of Offset"?
The "Right of Offset" gives a lending practice (i.e. Bank or credit Union) a legal right to seize funds that a debtor may have in a deposit or asset account at that particular banking or financial institution, to cover a loan in default. It is also known as the "Right of Set-Off".
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What are the dangers of the "Right of Offset"?
If an individual, couple, or other entity has a checking, savings, or other form of deposit account at the same financial practice where they have a credit card, auto loan, mortgage, other debt account, that individual or entity has what can be determined a "banking conflict". In other words, anytime an asset account is kept at the same banking practice as a liability account, a possible "banking conflict" occurs due to that banking institutions "Right of Offset". What this means is, if an individual for anything guess fails to make payments on a liability account, the financial practice has the legal right to not only ice that individuals asset/deposit account, but to also seize any funds ready to offset the debt due to that financial institution.
What types of liability accounts or debts does the "Right to Offset" pertain too?
A financial institutions leisure to use the "Right of Offset" is determined primarily by how they are chartered.
State chartered and regulated credit unions and banks, along with federal credit unions chartered and regulated by the National credit Union connection (Ncua) have the leisure and authority to exercise their "Right of Offset" on both secured accounts or asset backed (i.e. Mortgage loan, auto loan), and unsecured accounts (not backed by collateral) or open-ended revolving accounts (i.e. Positive credit cards and credit extensions).
Federally chartered and regulated banks (i.e. Bank of America, Wachovia Bank, Wells Fargo) have the leisure and authority to exercise their "Right of Offset" on secured, but not unsecured accounts. A bank/financial institutions proprietary and authority as it pertains to its use of "Right to Offset" may vary between institutions. To find the specifics of a particular practice investigate the following areas:
The institutions regulatory authority. The institutions member agreement received when establishing an account. The institutions loan/debt documents or agreements received when establishing a loan.Who regulates state chartered and federally chartered banks and/or financial institutions?
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