May 30, 1979

Re: Financial Code Section 864

Dear Ms. ________:

This is in response to your letter dated May 8, 1979.

In your letter you asked for the authority which allows a bank to deduct a loan interest payment from a depositor’s checking account.

Your attention is called to California Financial Code Section 864. A copy enclosed for your convenience.

The right of a bank to charge a deposit’s account with his or her matured, indebtedness is termed a “right of set-off”. The exercise of this right of set-off does not constitute state action. Therefore, it need not conform. to the requirements of procedural due process.)

Financial Code Section 864 provides that a set-off shall not result in an aggregate balance of less than $1000 for all of the checking accounts maintained by a bank’s customer. Furthermore, not later than the date following the exercise of any set-off with respect to a checking account, the bank, must either personally or by first class mail, give the customer written notice of the set-off in a form prescribed by the statute. The bank must also provide the customer with a printed response form by which that person can claim that the debt has been paid, is not now owing, or is not subject to set-off. The content and format of this form is prescribed by the statute.

If the response form is returned to the bank not later than twenty days after mailing or delivering the notice to the customer, the amount of the set-off shall he reversed, and the customer’s account credited. The bank can then file an action in the appropriate court.

I trust that this information is of some use to you.

Very truly yours,

Superintendent of Bank





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