I hope you don't mind me taggng my question alongside yours D&C.
A customer is past due and the lender wants us to take a payment from the customers account which should be allowed. Problem is the account doesn't have sufficient funds. Lender wants to overdraw the borrower's DDA account to make the payment. Is overdrawing a borrower's deposit account to make a loan payment allowed?
And it would be rather silly if it were allowed. The bank would be paying itself. The customer would owe the OD amount, of course, but they already owe money. The bank would be bring something current with borrowed funds...not a good idea.
Not to mention if the loan account is secured - you are turning a secured loan into an unsecured loan. It also misstates your past due situation and if you a SOX bank (and even if you are not), your internal controls should not let this happen.
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Outside of this practice just being all around screwy (also what Randy stated about mistating a past due situation), there is really no legal right to offset against monies that are not there. If the deposit account has a $0.00, then you can't take a loan payment from money that is not there. There is no offset right there. Correct?