Can Your Bank Take Money from Account to pay credit card?
The Quick Answer: No. Here’s Why:
For over 25 years, I worked as a debtor’s attorney, filing over 4,000 consumer bankruptcy cases under Chapters 7 and 13. Today, I represent creditors seeking to recover what they are owed from Texas debtors. This shift in focus has provided me with a unique perspective on creditor-debtor relationships, including questions like whether banks can offset credit card debt with funds from your bank account.
Banks Cannot Offset Credit Card Debt with Funds in Your Account
According to the Fair Credit Billing Act (15 USC § 1666(h)), banks are prohibited from offsetting credit card debt with funds you have in a deposit account. In simple terms, this means that your bank cannot seize money from your checking or savings account to pay down your overdue credit card balance.
Here’s why:
- When you have money in a bank account, the bank owes you that money.
- When you owe the bank money on a credit card, you are in debt to them.
- An “offset” would involve the bank using the funds it owes you (your deposit) to cover the debt you owe it (credit card balance). The law prohibits this practice for credit cards unless you have explicitly agreed to it in writing—a rare situation.
When Banks Can Take Money from Your Account
While banks cannot offset credit card debt with your account balance, they can offset other types of debts, such as:
- Personal loans
- Auto loans
- Secured debts
For example, if you have a car loan with the same bank where you hold a checking account, the bank may legally offset your funds to cover overdue payments on that car loan.
Bankruptcy and Bank Setoff Rights
When you file for bankruptcy, an automatic stay goes into effect, preventing creditors (including your bank) from collecting on debts or offsetting funds in your account. However, this protection doesn’t retroactively reverse setoffs that may have occurred before your bankruptcy filing.
As a former debtor’s attorney, my advice has always been:
- If you owe your bank money for personal or auto loans, consider opening a new account at a different institution before filing for bankruptcy.
- This precaution ensures your funds are safeguarded from potential setoff actions.
Credit Unions and Setoff Rights
Credit unions often operate differently from traditional banks. Many credit unions include clauses in their agreements allowing for offsets across various types of debt, including credit cards. Carefully review all agreements with your credit union to understand your rights and obligations.
Helping Creditors Recover What They’re Owed
As a creditor-focused attorney, I now assist lenders in recovering funds they are legally entitled to. Whether you’re a bank or another type of creditor, understanding the limitations and rights under laws like the Fair Credit Billing Act and bankruptcy protections is crucial.