When a financial institution can take money from your account

From Financial Consumer Agency of Canada

What is the right of offset

The right of offset (also called right of set-off) in the context of banking transactions is a right of a financial institution to recover money owed to it by a depositor on an outstanding debt such as a credit card or 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, it can take money you have on deposit with it or with one of its affiliates to pay off any outstanding debt you may owe it.

It may do so without:

  • first letting you know
  • getting your permission
  • leaving money in your account if the amount you owe is greater or equal to the amount of money in your account

If your bank doesn’t leave enough money in your account to cover upcoming cheques or pre-authorized debits, it can then charge you a NSF (non-sufficient funds) fee, which 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 an account agreement of a financial institution. 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 or 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 that you may not have enough money in your account to cover a payment, be proactive and 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 a professional such as:

  • a financial professional
  • an accredited credit counsellor
  • a licensed insolvency trustee or an insolvency lawyer

Use this complaint-handling process search tool if you want to make a complaint to your financial institution about its use of the right of offset.

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