Our overdraft protection line agreements include a right of setoff clause. Access methods include checks, debit cards, ATM cards. We are now seeing a "critical warning" on our LaserPro loan checklist stating that, per Reg Z 226.12(d), this is prohibited. In my reading of the Reg and the Commentary, the prohibition is specific to credit cards. Can anyone direct me to where I would find a reference that indicates prohibiting Right of Setoff when DEBIT cards are an access method? We do not offer Credit Card products. Thanks!!

It can be found in the Commentary 226.23(d)(3). The offset prohibition apples in overdraft check plans if the creditor has issued a debit or credit card that may be used at ATM locations to access the overdraft credit account directly or indirectly (by withdrawing funds from a deposit account connected with the overdraft plan). The Federal Reserve has stated its belief that placing a hold on funds in a cardholder’s deposit account in connection with indebtedness arising under a credit card plan would, since the effect is the same as that of an offset, contravene the rule prohibiting offsets.

Patrick T. Hubbs, CRCM, CBCO

Thanks for the response. I have sent the information to our legal area to review how we want to change our loan docs.