Right to Offset - BoA CC and CD held at bank owned by BoA

[LadyInTheRed]

I stopped making credit card payments early this month. One of my credit cards are with Bank of America. I have a 10K CD at First Republic Bank, which was owned by Merrill Lynch which was purchased by Bank of America. BoA entered into a contract to sell First Republic in October 2009 and, according to an article on the sale, the transaction is supposed to close this quarter. First Republic is still being operated separately from BoA. I know this question is hard to answer with any certainty. But, I'm interested to know people's thoughts on whether I need to worry about BoA taking the CD to cover the credit card balance.

Anyone have any experience holding deposit accounts in a subsidiary of a bank to whom they owe money?

I can exempt the CD in my BK. I know the safest thing to do is to cash out the CD. But, I'm earning 5% for another 4 years and would be penalized 6 month's interest if I withdrawal early. There's no way I can get anywhere near 5% on a new CD.

[justbroke]

Almost all terms and conditions of demand deposit, timed deposit, and credit accounts is that the Bank may use a right of offset to pay other obligations. Whether or not they do it, is anyone's guess. It wouldn't matter if it were a subsidiary or not, because most credit departments of a bank operate as a separate division.

Exempting it is not going to fix a "right of setoff" situation. The bank's right of setoff is a higher priority than your bankruptcy exemption, unfortunately. The best thing to do when you're having problems with credit products at a bank, is to move your demand and timed deposit accounts elsewhere!

Of course, don't take my word for it. Seek professional advice from an asset protection specialist or bankruptcy attorney. Too many have learned the hard way about the bank's "powerful" and often used right of setoff.

Justbroke's study guide: the right of setoff is protected (preserved) in bankruptcy under 11 USC 553(a)... "Except as otherwise provided in this section and in sections 362 and 363 of this title, this title does not affect any right of a creditor to offset a mutual debt owing by such creditor to the debtor that arose before the commencement of the case under this title against a claim of such creditor against the debtor that arose before the commencement of the case"

[StartingOver08]

OP, are you willing to risk the entire CD on the off chance that BOA will choose not to take advantage of their right of offset? If it were me, I would not take that chance. Protect yourself and your funds.

[LadyInTheRed]

Thanks for your quick reply, justbroke.

It wouldn't matter if it were a subsidiary or not, because most credit departments of a bank operate as a separate division.

Good point. I didn't think about that.

Exempting it is not going to fix a "right of setoff" situation.

Yep. Just provided the info as background for why I don't want to cash it if I don't have to.

Of course, don't take my word for it. Seek professional advice from an asset protection specialist or bankruptcy attorney.

I do have an appointment with my attorney on Wednesday to pay his retainer and get this process going. I plan to ask him about this. He's very experienced, but I thought I'd take advantage of the collective experiences here too. Can't get too much input.

I fear I won't hear what I want to. But, a 5% interest rate and 6 month's interest isn't worth losing the principal.

My one ray of hope is the possibility that the terms of the sale contract would prohibit BoA from using First Republic assets to offset obligations on non-First Republic accounts. Of course, there is probably no way to know that. I keep hoping the sale will close.

[LadyInTheRed]

OP, are you willing to risk the entire CD on the off chance that BOA will choose not to take advantage of their right of offset? If it were me, I would not take that chance. Protect yourself and your funds.

I know you're right. I'm grasping at straws. This is a great place to get a reality check!

I hate bank mergers!

[LadyInTheRed]

Some Hope?

I decided to google "'right to offset" "bank of america" and found a couple of sites saying that a federally chartered bank like Wells Fargo or Bank of America cannot offset for credit card debt.

The FAQs at the website of the US Treasury's Comptroller of Currency seems to confirm that:

However, federal law limits what a bank can do in some cases. For example, federal law won’t allow a bank to offset your deposit account to pay off your consumer credit card account.

http://www.helpwithmybank.gov/faqs/banking_offset.html

Then I decided to look at the Federal Regulations. CFR Title 12, Part 226, Section 226.12(d):

(d) Offsets by card issuer prohibited. (1) A card issuer may not take any action, either before or after termination of credit card privileges, to offset a cardholder's indebtedness arising from a consumer credit transaction under the relevant credit card plan against funds of the cardholder held on deposit with the card issuer.

(2) This paragraph does not alter or affect the right of a card issuer acting under state or federal law to do any of the following with regard to funds of a cardholder held on deposit with the card issuer if the same procedure is constitutionally available to creditors generally: Obtain or enforce a consensual security interest in the funds; attach or otherwise levy upon the funds;

http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?type=simple;c=ecfr;cc=ecfr;sid=ace0ebdc01e161e7dd38da93513f0bf0;region=DIV1;q1=right%20of%20offset;rgn=div5;view=text;idno=12;node=12%3A3.0.1.1.7#12:3.0.1.1.7.2.8.10

So, the question now is whether paragraph (2) means that there could be something that still allows them to to go after the CD without first getting a judgment. Perhaps a credit card agreement can create a "consensual security interest". But, I incurred the debt and purchased the CD before Bank of America owned First Republic. So, I don't know how it could be consensual for BoA to suddenly have a security interest in the CD because they bought First Republic.

I initially thought paragraph (3) could mean the terms of the card could be written authorization to levy, but then I realized that it probably refers to an agreement to take monthly automatic payments from a checking account.

I have more hope now, but will discuss this with my attorney on Wednesday.

[WhatMoney]

Also suggest you read the BoA account terms for your CD. They should have a section concerning rights of offset or setoff.

I found that my US Bank checking account terms for setoff excluded their contractual setoff rights for credit card accounts. It seems strange but that's what it said. But then they go on to say their right of setoff is subordinate to any security interest that they or an affiliate may have in your deposit account. Which means you need to know the terms of your CC contract as well. BoA is not USBank, so be careful and know all the contract terms if you keep it.

Edit: I see you found the Federal regulations, which explains why USBank and BoA would have that clause.

[justbroke]

I decided to google "'right to offset" "bank of america" and found a couple of sites saying that a federally chartered bank like Wells Fargo or Bank of America cannot offset for credit card debt.

In this case, all I'll say is... don't go reading teh CFR trying to figure out something yourself. You really need to read your credit card and other agreements in place in order to determine if you agreed to a consensual security interest in those funds. This is specifically why I deferred this to an asset protection professional.

I have personally had Bank of America setoff a credit card against a demand deposit account.

[LadyInTheRed]

Also suggest you read the BoA account terms for your CD. They should have a section concerning rights of offset or setoff.

I found that my US Bank checking account terms for setoff excluded their contractual setoff rights for credit card accounts. It seems strange but that's what it said. But then they go on to say their right of setoff is subordinate to any security interest that they or an affiliate may have in your deposit account. Which means you need to know the terms of your CC contract as well. BoA is not USBank, so be careful and know all the contract terms if you keep it.

Edit: I see you found the Federal regulations, which explains why USBank and BoA would have that clause.

First Republic's current CD terms (I don't have a copy of the terms at the time I opened the CD), the section about set offs says "The law permits us, in certain circumstances, to use the money in an account to satisfy any debts you owe us that are not paid when due." Another part of the terms defines "us" as First Republic Bank. There is nothing anywhere to include Bank of America, affiliates or parents in the terms to the agreement. The only mention of Bank of America is on a title page where it says "a subsidiary of Bank of America..." under the name "First Republic Bank". Not that I'd want to have to fight over the language of the contract AFTER a set off.

I requested a copy of the Bank of America credit card contract which will take 10 days (why they can't send a PDF, I don't know). But, I did find a copy of the 12/31/09 credit card agreement on a website and there is no mention of a right to set off. The disclosures on the BoA website also does not mention set off.

The risk of keeping the CD is seeming smaller and smaller. But, it is a lot of money to risk. I'm hoping my attorney can answer the question with certainty.

[LadyInTheRed]

I have personally had Bank of America setoff a credit card against a demand deposit account.

Fine, burst my bubble!

I'll have to wait until I get a copy of my actual agreement in the mail since I can't be sure the one I found on line is the correct one. How long after you stopped paying did they offset?

[justbroke]

I'll have to wait until I get a copy of my actual agreement in the mail since I can't be sure the one I found on line is the correct one. How long after you stopped paying did they offset?

30-days.

[LadyInTheRed]

They don't waste any time! That gives me 15 days to decide what to do. Thanks for the info!

[justbroke]

They seem to do it when they "know" you aren't going to pay. Don't ask me how they know. It was random and unexpected at the time.

[keptdigging]

My first thought was that Republic was probably being operated totally independently and they probably won't offset.

Doesn't matter.

This is a risk-reward thing. A 10% chance isn't worth it. A 5% chance isn't worth it.

Protect your money while you still have it.

[LadyInTheRed]

My first thought was that Republic was probably being operated totally independently and they probably won't offset.

Doesn't matter.

This is a risk-reward thing. A 10% chance isn't worth it. A 5% chance isn't worth it.

Protect your money while you still have it.

One thing I thought about doing is calling the rep from the Republic. This is the bank the firm I work for uses. I referred a multi-million dollar client to this account rep and will be in the position to do it again. If I just called and asked, she might give me a straight answer. My guess is she has no loyalty to BoA. But, I still have some fear that my question will accelerate an offset. I also thought about calling the customer service line anonymously, but I'm not confident that a telephone rep will know the answer, even if they pretend to.

I started shopping for CD rates. Depressing. I think I'll go short term and hope rates start to go up.