Does the Fair Debt Act Include Bank Offsets?

Setoff

• The right of setoff, also called the right of offset, allows your bank to freeze your accounts and use the funds to recover unpaid debts you owe. Banks generally preserve this right in the paperwork you sign when you open your accounts. Your deposit accounts represent your bank's debt to you, that is, money your bank must pay you if you request it. Your debt with the bank generally represents money you must pay the bank when it requests it. Accordingly, when a bank exercises its setoff rights, it is simply adjusting the amount it owes you based on the amount you owe it.
  
  

Fair Debt Collection Practices Act

• The bank setoff generally is not considered an abusive collection practice for FDCPA purposes. Congress enacted FDCPA to stop abusive collection practices. Congress enacted the FDCPA following a study revealing that debt collectors' unacceptable collection practices were contributing to invasions of personal privacy, marital breakdowns, bankruptcies and job losses. The FDCPA imposes restrictions on what debt collectors may and may not say to debtors and when they may contact them. It also imposes monetary penalties on debt collectors that violate the Act.
  
  

Violations

• Your bank's offset generally does not fall into the category of an FDCPA violation. Generally, the FDCPA requires debt collectors to disclose that they are debt collectors attempting to collect a debt when they correspond with you. At some point, the debt collector must also disclose, in writing, that you have 30 days to request a written validation of the debt. The debt collector's failure to abide by these requirements constitutes a violation and could be the basis for a lawsuit and money damages. Another violation would involve threatening to sue you when the debt collector has no intention or authority to do so.
  
  

Original Creditors

• The FDCPA does not apply to your bank's decision to exercise its right of setoff because the bank is your original creditor. The FDCPA generally does not apply to original creditors. Generally, an original creditor is the entity that extended the loan that is being collected. In some cases, if the original creditor still maintains the power to collect the debt, it can also include collection agencies hired to help with the process.