When a financial institution can take money from your account
What is the right of offset
The right of offset, or set off, is a financial institution's right to recover money you owe them. For example, on an outstanding debt like a credit card or a loan. Financial institutions frequently include a clause in their account, loan or credit card agreements that gives them this right.
How the right of offset works
When a financial institution uses its right of offset, they can take money you have on deposit with:
- them
- one of their affiliates
This is to pay off any outstanding debt you may owe them.
They may do so without:
- first letting you know
- getting your permission
- leaving money in your account. This is if the amount you owe is equal or greater to the amount of money in your account
Your bank may not leave enough money in your account to cover upcoming cheques or pre-authorized debits. They can then charge you a non-sufficient funds (NSF) fee. This can lead to a situation where your debt grows quickly.
A right of offset may also apply to accounts you hold jointly with others.
If you have any questions about your financial institution’s right of offset, be sure to ask.
Example of a right of offset clause
Financial institutions don’t all use the same wording to describe the right of offset in their agreements. The following is an example of a financial institution's account agreement. Look for a clause that contains similar language.
“We may debit any other account you have with us with the amount of any payment you are required to make to us and credit the amount to the outstanding debt under this agreement.”
How to prevent your account from being offset
The best way to avoid an offset is to always pay off your debts. Another way is to at least stay up to date by making the minimum payments due. Verify your account statements regularly to make sure you have enough money to cover any pre-authorized payments.
If you think you may not have enough money in your account to cover a payment, be proactive. Contact your financial institution right away to explain the situation. You might be able to reach an agreement with them for your payment.
If you’re having trouble paying your debt, consider talking to someone like :
- a finance professional
- an accredited credit counsellor
- a licensed insolvency trustee or an insolvency lawyer
If you have a problem with your financial institutions’ use of the right of offset, contact them.
Find the complaint-handling process for your financial institution.
Get electronic alerts from your financial institution
Your financial institution may send you an electronic alert when the balance of your chequing or savings account falls below a certain amount.
These alerts may help you manage your day-to-day finances and avoid fees.
Learn more about these electronic alerts.
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