Right of Offset - Explained
What is a Right of Offset?
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Table of ContentsWhat is the Right of Offset?How Does the Right of Offset Work?What Can You Do To Avoid Being A Victim of Set-Off Rights? How to Get a Refund on Offset Funds?
What is the Right of Offset?
A financial Institutions contractual right to withdraw cash from its consumers accounts to pay off their debts or liabilities, is called the Right to Offset. Set-Off rights are included in the user agreement before signing up with a service so the institution can access the funds in user accounts and merge them with its own when required. Banking institutions and tax authorities have the right to set-off by default unlike other financial institutions. Section 226.12(d) of the Federal Reserve Boards Regulation Z, blocks the application of set-off rights to claim credit card debts.
How Does the Right of Offset Work?
Exercising the Right to Offset can lead to a series of issues for the customers. For e.g. if you've issued a post dated cheque, and the bank withdraws money from your account in the interim to clear your dues, your cheque is bound to bounce leading to a new set of problems. In more serious situations, consumers could lose connections to utility services like electricity or water for late payment due to paucity of funds, or end up defaulting on mortgage payments leading repossessions or evictions.
What Can You Do To Avoid Being A Victim of Set-Off Rights?
Consumers should strive to keep their savings accounts and overdraft accounts separate, preferably with different banking institutions. The savings account shouldn't have the overdraft facility so theres no option to offset funds. Open this savings account with a bank that you do not owe debts to.
How to Get a Refund on Offset Funds?
The Right to Offset comes with a lot of rules, chief amongst which is the banks responsibility to check whether you'll be left with sufficient funds in your account to meet your basic needs like paying rent, mortgage, food bills, and tax dues. Earning income from state benefits also constitutes a special case. If your bank is guilty of overlooking any of the special conditions under which the Right to Offset is barred from being exercised, you can make a case to your bank and get your money back. If the bank refuses to comply with your request, you can exercise the Right of First Appropriation to insist on being refunded. Use the appropriate grievance redressal channels available to you to reclaim your money.