Customer paid commercial loan payment with a check that has been returned NSF -- Can I debit his checking account instead of reversing the loan payment? My first thought is No - reverse the loan payment -- but is there any rule or regulation that would be broken if I charge the DDA instead?

I'm not a loan expert, but you need to look at your loan agreement - it may/should be covered in there.

If the loan agreement contains language about right of setoff, you may be able to debit his checking account. However, if you do, I would still reverse the loan payment however you would normally do so, and then do an advice of charge against the checking account with the loan payment transaction, with notations as to the situation. This way you have an audit trail of what actually occured.

Normally the right of setoff only comes into play when collecting the debt and not on individual payments. If you are in a State that only allows one shot at curing a default, this is not the one you want to pick.

Is there some particular area in state law where can I find a reference to the "one shot" aspect of setoff? For example, in PA, any suggestions as to where generally to confirm that aspect? Many thanks!