A reader wonders if a bank can offset his grandmother’s credit card debt using her checking account, and whether she should stop making minimum payments on her debt since her income is limited.
If the bank you have your checking account with is the same one that issued your credit card, can the bank access your checking account to pay off your credit card debt?
Reader Andres has raised that query on behalf of his grandmother. He writes, “My grandmother has her Social Security and her late husband’s pension deposited into her checking account, and this is her sole income. I know she is protected from creditors seeking to debit her account. Could she also stop paying the minimum payments for the two credit cards she has with the same bank without reprisal? She needs every penny she can keep to afford her assisted living facility. Thank you.”
Credit card debt protected from offset
The use of money in your bank account to pay off any other amounts you owe the bank is called the “right of offset.” Fortunately, the Truth in Lending Act offers protection to prevent a bank from pulling the rug from under your feet in this fashion.
This law states that “a card issuer may not take any action to offset a cardholder’s indebtedness arising in connection with a consumer credit transaction under the relevant credit card plan against funds of the cardholder held on deposit with the card issuer.”
Moreover, the bank cannot freeze any funds in your bank account to offset them against your credit card bill. Considering that this is the equivalent of an offset, the bank can’t do this unless it otherwise has permission to put in this freeze. The bank also cannot take recourse to any funds meant to be deposited to your account to offset your credit card debt.
The offset protection also extends to finance charges and other charges relating to your credit card account. Not only that, if you have overdraft protection on your bank account that’s linked to your credit card’s line of credit, the offset protection applies to any overdrawn funds on that linked account.
Exceptions to offset protection
However, there are certain exceptions. For one, if you have given your permission in writing for the bank to periodically take funds from your bank account to pay off your credit card debt, the bank can access the money for this purpose. Even then, you can request the bank not to offset any amount that is in dispute.
If the bank closes your credit card account, the offset protection still applies to any card debt you incurred before the account is closed. However, it doesn’t apply to credit card debt that you incur after the account is closed.
There are other exceptions that would allow use of an offset. For one, if you gave the bank a security interest in your checking account (perhaps to get more favorable terms on your card), the bank can offset those funds against your debt. This permission cannot be a regular part of the credit card agreement and must be separately disclosed.
Also, the card issuer could go to court and get a judgment against you. The bank could then dip into your checking account to offset your card debt, unless the judgment specifically prohibits this action, or unless there are any state or other laws against that approach.
Negotiate with issuer
The good news is that a bank cannot typically use your bank account to offset your card debt. However, it is not a good idea to default on your credit card debt just because you have this protection. For one, there are credit consequences. Your credit score would take a hit and the impact will last up to seven years. That will make life harder for you if you want to access credit for some reason.
A better idea is to negotiate with your card issuer to see if it can come up with a repayment plan. It is also in the issuer’s interest to recoup the debt and you could ask for a lower interest rate, for one. You could also consult with a legitimate credit counselor who can come up with a financial plan for you and also help you in negotiating with your card issuer.
Additionally, you could try to snag a 0% interest balance transfer offer from another issuer. That would allow you to consolidate the debt on that card and give you time to sort out your finances.
If nothing else works, you could resort to a bankruptcy filing, with the help of a pro bono attorney, so that you get a fresh financial start. Keep in mind that bankruptcy will be a blight on your credit for up to 10 years.
A bank cannot typically take money in your checking account to pay off your credit card debt. However, this protection is not bulletproof and the bank could get a judgment against you to seize the money, for one. Defaulting on the debt will mean a hit to your credit score and is not the best way to handle the situation.
Andres, your grandmother could get help from an accredited credit counselor to sort out her finances and help her negotiate with the card issuer. If all else fails, a bankruptcy filing would give her a fresh financial start. I understand it’s difficult for retired people living on a limited income. Hope your grandmother is able to sort out her financial situation!
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