You should consult counsel. This may not be seen as a valid form of setoff, there could be questions as to collateralizing the overdraft and of moving a short term overdraft to the loan, effectively "hiding" a problem. Your deposit agreement and loan contracts would need to be reviewed.
I have heard of this before. I can't say it is wrong, but I believe it is gray at best. While not a "Z" issue, it certainly could be a questionable practice.
My opinions are not necessarily my employers.
Rules and Regs minus Relationships equals Resentment and Rebellion. John Maxwell