If a customer has two DDA accounts and one becomes overdrawn, could we debit the other account for the overdrafts? We feel as if we can, but need some thoughts on this. Thanks.

Recommend you check your right of offset. If you offset against the other account you may waive your right as a bank to collect from the customer by other legal actions. Not good if you offset against a balance not sufficient to pay the overdraft.

What do the terms of you account agreement and disclosure provide?

If you return checks on the offset account as there are no longer funds there to pay legally issued checks, make sure you don't return them as NSF.

Think about waiving any charges to return checks on the offset account. You may just be creating another overdraft balance that will need to be charged off.

Be prepared to be contacted by the customers attorney even if you have the right to offset.

What is the cost of potential legal action against the amount of the overdraft loss.

Just some thoughts

You should have the right to setoff in your account agreement. It isn't any attempt to create a sweep since both are DDAs. It's fine so long as there are no ownership issues.

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Andy Zavoina
Opinions stated are not necessarily that of my employer.

Andy, could you please expand on the "ownership" issue? Our deposit agreement does give right to offset. Thanks.

Ownership issues would arise if John Doe has one account and John and Jane have the second. If you setoff, Jane may be upset and depending on the dollars involved you may or may not want to deal with it. If you debit John and John Jr.s joint account you may have some publicity problems. Some years back the IRS garnished little Johnny's account and every dime deposited was from his paper route, recycling cans he picked up, etc. They refunded the money after a lot of bad press. (Like the IRS loses sleep over that. But you get my drift.) Also, if it turns out John was a convenience signer or added to assist an ailing parent and had no ownership rights, you'd have issues.

It is extremely clean when the owners are the same. After that, you have to decide how much you are recovering and if it is worth collecting it that way.

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Andy Zavoina
Opinions stated are not necessarily that of my employer.

[This message has been edited by Andy Z (edited 05-04-2001).]

You have to be certain that there is common ownership between the accounts. For example, you cannot set off against a personal account to cure an overdraft in a corporate account, even if the signer on the corporate account owns the personal account. Why? Because the personal account is owned by the individual, and the business account is owned by the corporation.

In some states, you might get into trouble if you set off against a joint account to cover an overdraft in an account owned by only one of the joint signers. You might want to see if you can craft language in your account agreement that would permit such a transaction (check with counsel).