Academic journal article ABA Banking Journal

Offset Rights in Jeopardy

Academic journal article ABA Banking Journal

Offset Rights in Jeopardy

Article excerpt

A preliminary ruling in mid-October by a California state court against one of the nation's largest banks has cast into further confusion the issue of a bank's right to offset against deposit accounts funded through direct deposit of Social Security payments. ABA has warned that the preliminary ruling, which was scheduled to be revisited by the court at the end of November, would make it difficult for consumers who receive Social Security to avail themselves of the increasingly popular fee-based overdraft service.

At issue in the class-action suit-Miller v. Bank of America-is whether banks may offset Social Security funds to regain past overdrafts or NSF or related fees incurred by the accountholder. The California Superior Court decision stated that under California law, government benefits such as Social Security are intended solely for the benefit and support of recipients and are supposed to be exempt from collection, including offset through a deposit account relationship. An expert witness for the plaintiffs testified that the bank's systems were capable of identifying accounts that were funded by federal direct deposit of benefits and capable of blocking offset if the bank so chose.

The ruling, as handed down in October, only affects Bank of America's operations in California. The court's preliminary position is that the bank shall pay the affected class at least $364 million in damages.

"The potential effect of this ruling is far-reaching," said ABA Executive Vice-President Edward L. Yingling in a formal statement. "All bank customers in California-particularly those who arguably have the greatest need for overdraft protection-could lose access to this convenient product if this ruling stands. …

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