By: Matthew Young, Attorney
I want to take a moment to address rights to set off (or “offset”) from a credit union’s account. This issue most commonly arises when the debtor misses a payment or dies. As a general matter, most credit unions should have the right to set off funds in either of these scenarios if the proper language is provided in their account agreement and loan documents. One significant exception to this rule is credit card accounts. In cases where the account is current but the member dies, the credit union may wish to set off remaining funds in an account as the ability to collect from the estate can be limited or impossible. In those cases, you want to be sure there is “default on death language” in your loan agreement.
Common law set off requires three elements to be met: (1) mutuality of obligation, (2) the debtor member’s owns the funds used for set off, and (3) the debt is mature at the time of set off. Citizens Fed. Bank, FSB v. Zierolf, 119 Ohio App. 3d 46 (1997). Mutuality of obligation requires that the credit union hold funds on behalf of the member debtor and the member is obligated to the credit union. In a typical situation the member has a loan, which makes the member obligated to the credit union. The member also has a share savings and share draft account with the credit union, which makes the credit union obligated to the member. It can include a joint account even though one of the joint owners is not obligated to the bank. Id.; Chickerneo v. Society Nat’l Bank of Cleveland, 58 Ohio St. 2d 315 (1979). It requires, however, that the credit union has rules and regulations to permit the offsetting of funds in a joint account where one of the joint account holders is not obligated to the credit union. Chickernero, at syllabus. In absence of such rules, the funds may not be offset. Nichols v. Metropolitan Life Ins. Co., 137 Ohio St. 542 (1941).
Next time your credit union is considering setting of member’s funds in satisfaction of a debt, be sure to consider these factors to avoid a subsequent claim by the member or member’s estate. If the set off is determined to be improper, the credit union could be liable for conversion claims (wrongful taking of money), which could implicate a court award of treble damages and attorneys’ fees.