by footloose » Wed Feb 23, 2011 12:51:55 PM
If you have funds on deposit in an bank account ( whether it be a savings account or a chequing account ) and you have obtained a loan ( whether it is secured or unsecured ) from that same bank ( not necessarily the same branch ) and you default on the loan, and the bank chooses to seize the asset for which the loan was made, the bank can exercise their "right of set-off". This is a legal principle which is used all the time. In simple layman's language, it means that if a creditor owes money to a debtor and the debtor owes money to a creditor, the creditor can offset the money it owes the debtor by deducting or withholding money that the debtort owes the creditor..
Let's say, for example, that you defaulted on a student loan and you owe the Government of Canada $5,000. You file your personal income tax return and are claiming a tax refund of $1,000. The Canada Revenue Agency acting in the capacity as Agent for the Government of Canada will deduct your income tax refund from the amount of your defaulted student loan leaving a balance owing to the Government of Canada of $4,000. The Government of Canada is NOT suing you but exercising their "right of set-off".
If you have funds in a bank account at the TD bank, at any branch anywhere in Canada and you owe money to the TD bank, the bank can exercise it's "right of set-off" and seize those funds. However, if you close your account at the TD bank and transfer those funds to an account at the Royal Bank, the TD bank CANNOT seize these funds because the TD bank does not owe you any money. The Royal Bank owes you money, therefore the TD bank CANNOT exercise their "right of set-off".
Please see my blog on January 6, 2011 where I explain it again.
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Educating one Consumer at a time.