The CFPB cracks down on banks retaining funds for unpaid balances

Think twice about obtaining a credit card from your bank or credit union. While it may seem more convenient, obtaining a credit card underwritten or branded by your banking institution may present risks should you have an unexpected default. This is true because of a little known contractual term in almost all deposit account agreements. This term is known as a “right to offset”. Specifically, the bank or credit union holding your deposits retains a right to offset any loss it may incur from your default on any unrelated account.

This right is not just theoretical. On October 11, 2015, the CFPB ordered Navy Federal Credit Union to pay $28.5 million in fines and restitution to victims of the credit union’s abusive debt collection tactics. In the investigation it was revealed that the credit union cut off about 700,000 members from access to their accounts since Jan. 1, 2013. Navy Federal froze accounts only one to five days after a customer’s loan was delinquent. Customers were prevented from ATM use, use of their debit cards, and all online account access was shut down – with the exception of making payments to the delinquent account.

The CFPB order does not specifically mention the credit union’s “right to offset” policy; however, in our experience, these policies are present in nearly every deposit account agreement. The order does cite Navy Federal’s policy of freezing electronic access to accounts as an unfair practice under the Dodd-Frank: Title X, known as the Consumer Financial Protection Act of 2010.

Current versions of Navy Federal’s credit card agreement posted online still contain the security interest clause or right to offset against an cardholder’s “individual or joint checking account.”

For more information see

Dave represents clients in Minnesota on a range of legal issues, including civil litigation, business ventures, and creditor relations. He also has expertise raising capital to finance David v. Goliath cases. (Yes, pun intended!) Dave can be reached via email at