Kelly Guzzo recently filed a lawsuit against a credit union on behalf of consumers who had money taken from their bank accounts when they were behind on credit card accounts with the same financial institution. If your credit card company took funds from your bank account to offset (or set off) a past due credit card debt when a consensual security interest did not exist, you may be entitled to relief under the Truth in Lending Act and the Electronic Fund Transfer Act.
Hypothetical Scenario
Imagine that you fall behind on your credit card bill and miss several payments. Afraid that you’ll soon be sued, you inform the credit card company that you plan to enter a payment arrangement in a few weeks—that is, after you receive a sum of money that you’re expecting outside of your normal stream of income (perhaps from a work bonus, a tax refund, or a sale of personal property). Of course, you have other bills to catch up on too, so you can’t promise the credit card company the entire expected sum.
But when the lump sum hits your checking account, the credit card company immediately takes it. You ask yourself: “How is this allowed?” There was no court judgment. Or a right to garnishment. In fact, you had a plan for paying back your debt in a way that would allow you to manage the rest of your expenses. In any event, you never authorized the credit card company to take that money. Now, your entire plan for getting back on your feet has been thrown into chaos.
Your Rights
A credit card company generally does not have a right to offset (or set off) a past due debt by debiting that money from your bank account. See 15 U.S.C. § 1666h(a) (“A card issuer may not take any action to offset a cardholder’s indebtedness arising in connection with a consumer credit transaction under the relevant credit card plan against funds of the cardholder held on deposit with the card issuer . . . .”); 12 C.F.R. § 1026.12(d) (“A card issuer may not take any action, either before or after termination of credit card privileges, to offset a cardholder’s indebtedness arising from a consumer credit transaction under the relevant credit card plan against funds of the cardholder held on deposit with the card issuer.”).
This means that, in most situations, your credit card company cannot just unilaterally take past due amounts from your bank account—even if your bank account is with the same financial institution.
But there are exceptions. Most notably, a credit card issuer retains the right to “[o]btain or enforce a consensual security interest in the funds.” 12 C.F.R. § 1026.12(d)(2). This means that if the credit card company has a “consensual security interest” in the funds in your bank account, it can take those funds—without prior notice to you—subject to that security interest. So what is a consensual security interest?
Understanding whether a credit card company has a consensual security interest requires a careful analysis, which looks to whether: (i) you were aware that granting a security interest was a condition for the credit card account; and (ii) you specifically intended to grant a security interest in a deposit account. See Official Interpretations to 12 C.F.R. § 1026, Supp. I, Part I ¶ 12(d)(2) (effective Jan. 1, 2023).
Your awareness and intent could be determined by complicated factors such as: (1) a “[s]eparate signature or initials on the agreement indicating that a security interest is being given”; (2) “[p]lacement of the security agreement on a separate page, or otherwise separating the security interest provisions from other contract and disclosure provisions; and (3) “[r]eference to a specific amount of deposited funds or to a specific deposit account number.” Id.
If no consensual security interest existed, you may have a claim against the credit card company under the TILA. 15 U.S.C. §§ 1640(a), 1666h(a). And if you did not authorize the taking, you may have a claim against your bank under the EFTA for holding you liable for an unauthorized electronic funds transfer. 15 U.S.C. §§ 1693f, 1693g, 1693m.
Contact Us For Help
At Kelly Guzzo, we are committed to assisting consumers who have been subjected to TILA and EFTA violations. Please do not hesitate to contact our office to receive a free consultation to see if you have a potential claim.
