Answer:
Technically, the "right of offset" is when you reduce the amount you owe the customer and use the funds to reduce the amount he owes you; e.g. you take money from my checking account and apply it to my loan at your bank.
When you process a U.S. Treasury reclamation notice you are taking the money from my account, but not for the benefit of your financial institution. The funds you take belong to the government, not the account holder.
In short, "reclamation" and "offset" are two different things. Said differently the statutory prohibition against offsetting SSA and SSI funds does not apply to the government's attempts to reclaim funds paid in error or under false pretenses.
First published on BankersOnline.com 5/12/03
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