Right of Offset

Posted By: Carter'sMom

Right of Offset - 09/28/16 09:18 PM

I know in a covered transaction, the bank can not 1) waive rights to legal recourse, (2) require borrower to submit to arbitration, (3) require advance payment and (4) have prepayment penalties.

Will we still have the right to offset a deposit account to collect on a delinquent covered loan?
Posted By: CULady

Re: Right of Offset - 09/28/16 09:29 PM

Our interpretation is no.
Posted By: Andy_Z

Re: Right of Offset - 09/28/16 09:40 PM

Here is my interpretation. The MLA rule says is that a bank can exercise its statutory right to setoff to use its security interest in deposited funds for repayment. Note the term "statutory right" in this. You may have a contractual right in your agreement with the borrower, you may have the common law right, but do you have a statutory right? Look to state law unless you are a CU, in which case federal law may be your answer at USC 1757(11).

I can tell you OK and TX have a statutory right but I'm told that not all states do. No, I do not have a list.
Posted By: Andy_Z

Re: Right of Offset - 09/28/16 09:42 PM

CULady, I'm surprised, I thought 1757 covered you? I'm not a lawyer, no legal advise and I'm certainly not always right, but I see this differently. I hope I'm not the minority.
Posted By: CULady

Re: Right of Offset - 09/28/16 11:16 PM

We are a State-Chartered Credit Union.

I am new to state charter land and am still trying to figure out what the differences are between FCUs and CUs. But I am pretty sure that is a federal thing, not state.
Posted By: CompliantOkie

Re: Right of Offset - 09/29/16 01:32 PM

Our interpretation is that we do retain right of offset. However our LOS has taken the opposite approach and has removed the language from our note for covered borrowers. Their lawyers are supposedly looking over the arguments we sent them. We will see if things change.
Posted By: Carter'sMom

Re: Right of Offset - 09/29/16 02:06 PM

Do you mind sharing which LOS you use?
Posted By: CompliantOkie

Re: Right of Offset - 09/29/16 02:27 PM

We use LaserPro.
Posted By: Carter'sMom

Re: Right of Offset - 09/29/16 02:31 PM

We do as well... Thanks! :-)
Posted By: Andy_Z

Re: Right of Offset - 09/29/16 05:20 PM

As a former lender from a military bank, losing the right to setoff is a major game changer and would negatively effect loan volume.
Posted By: CompliantOkie

Re: Right of Offset - 09/29/16 06:04 PM

I agree totally Andy. Losing Right of Offset is very damaging but not having a choice on the interpretation is the worst thing. LaserPro just unilaterally decided how they would handle it and we are forced to accept their interpretation. Of course we submitted a case but it's going to be a while before any attorney can be convinced to change their mind.
Posted By: RR Joker

Re: Right of Offset - 09/30/16 01:27 PM

Unless I'm totally missing something C-1 did as well. Lots of note language changes. Now, I don't believe that includes an account taken AS security....but not to just draw money from an account to pay a past due loan.