Can a Bank Use Right of Offset to Deduct Monthly Payments on a Loan That Is Not Delinquent?

The right of offset, also referred to as a bank setoff, gives banks permission to legally withdraw funds from a customer's account to cover a delinquent debt through the same bank. Federal laws prohibit banks from offsetting an account to cover a revolving debt, such as a credit card. However, loans are subject to an offset once they become delinquent. If your loan isn't delinquent, the bank can't use a right of offset to collect the monthly payment.

Your bank can't take money from your accounts to cover a current loan unless you consent to automatically have the payments debited from your account. If you fall behind on a loan through your bank, it can offset your checking, savings or investment accounts without prior notice. Although they have the right to do so, banks will generally exhaust other collection methods before tapping into your accounts. A debt is considered late once the due date passes, but payments typically are not considered delinquent until they are 30 days late.