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When Can a Bank Take Money From Your Checking Account Without Your Permission?

Published July 1, 2024
Steven Porrello
Author: Steven Porrello
Steven Porrello
Steven Porrello
Writer

Steven is a personal finance writer covering topics from mortgages to credit cards to market news. He has written for The Motley Fool Canada, Ramsey Solutions, Nerdwallet, Clever Real Estate, and other major outlets. Steven launched his writing career at the age of four with his first book, "Revenge of the Bad Guys." He currently lives in Portland, Oregon.

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Bank accounts are one of the safest places to store money. As long as your bank has FDIC insurance, your deposits are insured up to $250,000 per account holder.

That said, under some circumstances, a bank may have the right to withdraw money from your checking account, even if it doesn't obtain your permission in advance. It typically occurs when you borrow money and bank at the same institution.

Let's take a look at when a right to offset might occur and what you can do to prevent it.

When can a bank take money out of your account without your permission?

Contrary to what you might think, a bank could legally withdraw money from your deposit accounts (like a checking or high-yield savings account) if you've defaulted on one of its loan products, like a mortgage or car loan.

The technical term for this is the "right of offset" or "right to offset." Under this right, which can be found in your account's deposit agreement, your bank can subtract money from any deposit accounts to cover outstanding balances.

The account and unpaid balance must be with the same bank for the right to offset to be legal. A bank cannot take funding from an account that isn't theirs.

Oddly enough, banks cannot seize funding for unpaid balances on credit cards. Consumers are protected from this under The Federal Reserve Board's Regulation Z Section 1026.12, which forbids financial institutions from withdrawing funds to cover outstanding credit card balances.

Banks also won't seize money from retirement accounts, like a 401(k) or IRA. They can only take funding from deposit accounts, such as a checking account, savings account, money market account, or certificate of deposit (CD). This could be an account that you own solely, or a joint account that you share with someone else.

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How to stop your bank from taking money without permission

If you can find right of offset language in the deposit agreements that you signed, there's not much you can do to stop your bank from legally withdrawing money without your permission.

That said, if the right of offset bothers you, you could bank and borrow money from separate institutions. You might hold your checking and savings accounts at one bank, for instance, while getting car loans or mortgages from another. In this way, your lender cannot legally seize your money if you fall behind on payments.

Of course, you could also avoid this by keeping up with your loan and mortgage payments. So long as you don't give your bank reason to dip into your checking account, you'll never have to face an unexpected withdrawal.

If you do start falling behind on payments, however, it might be wise to reach out to your bank and see if you can set up a debt repayment plan. Many banks are willing to work with you, especially if you're undergoing financial hardship resulting from a job loss, death of spouse, injury, or other unexpected event.

One option for dealing with unpaid debts

If you need a way to manage your unpaid debts so the bank doesn't claim the money in a right of offset, you might be able to transfer your debts to a balance transfer credit card with a 0% intro period.

This could work with personal loans whose payments you're getting behind on, though be careful -- not all 0% APR credit cards will allow you to transfer loans.

To be clear, a bank won't withdraw funds without your permission for any other purpose than to cover outstanding debts. Take a look at your deposit agreement to see if your bank has a right to offset and don't hesitate to report any unauthorized withdrawals, as it could be a sign of fraud.

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