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Home >> Accounts >> Checking Accounts
Check Confusion: Funds Used for Delinquent Note?
A check was paid on a checking account 3/27/2009, but the bank returned it as NSF, to use the funds on a delinquent note on 3/30/2009. Is that legit?
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 A bank generally has a right to offset money it owes (a deposit account balance) to a customer against a delinquent loan obligation of that same customer. There may be state laws that restrict or regulate the use of offsets, and federal law prohibits its use to collect balances due on credit card accounts of consumers.
The bank also has a set cutoff hour on the business day after a check is presented for payment before which the bank can refuse payment, if a competing claim to the funds with a higher priority is made. Offset of a delinquent obligation to the bank is one of the competing claims that would have priority over the payment of the check unless payment was final, as would be the case if the check had been exchanged for cash or a cashier's check, or certified by the bank.
Because March 27 was a Friday, the deadline for decision on that check was the next business day, Monday, March 30. If the decision to offset against the account was made before the bank's cutoff hour, it was in time, and the bank legitimately reversed the payment of the check.
Published on BankingQuestions.com 4/16/09
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