Can Banks Take Money From Checking Account To Pay Loans?
Can a bank take money from your checking/savings account to pay off your loans?
An Atlanta couple were surprised to have their Wells Fargo checking account emptied by the bank in order to pay back a student loan. The bank deducted $4,059.82 from the checking account, which was originally a Wachovia account, to put toward the $10,000 student loan, according to the Atlanta Journal Constitution.
Wells Fargo had called in the student loan even though the couple thought they had another six months before having to make payments. The student loan account had been turned over to collections.
Wells Fargo was able to take the money from the checking account because of what is called the right of setoff. This means that when people deposit money in banks, they are agreeing that the banks can borrow the money if they promise to repay it. If a person borrows a loan from a bank where they also have money on deposit in a checking or savings account, the bank can take that money and apply it to the loan balance. Banks usually avoid using the right of setoff unless they’ve run out of other options.
“We don’t do this without lots of attempts to communicate with our customers and try to work things out,” said Jay Lawrence, Atlanta spokesman for Wachovia. “When this happens, we don’t like to do this. We want our customers to succeed.”
Unfortunately, the process of removing money from the checking account resulted in the couple being hit with overdraft fees for purchase that would have cleared if the bank had not taken the money, and suffering other financial damage.