An Atlanta couple has found themselves with their savings wiped out after their
bank, Wells Fargo, cleared out their checking account in order to pay a piece of
what bank officials maintain is an outstanding student loan (“Suddenly, Bank Account Was Gone,” The Atlanta
Journal-Constitution, May 1, 2010).
After Hope and Matt Hughes had problems trying to make a purchase with their debit
card last month, they discovered that Wells Fargo had cleaned them out,
withdrawing $4,059.82 — everything they had — from their checking
account. They were also hit with $385 in overdraft fees for debit-card purchases
they had made on the day their checking account was emptied.
Wells Fargo appropriated the funds under its right of “setoff,” a prerogative held
by most banks that allows a bank to take money from a customer’s savings or
checking account in order to pay off any other account — a home mortgage,
credit cards, student loans — that the customer holds with the bank that’s
overdue.
In the Hugheses’ case, Wells Fargo was collecting money it says it was owed on a
$10,000 student loan Hope had taken out with Wachovia Bank, which was acquired by
Wells Fargo in 2008.
Your Bank’s License to Help Itself to Your Money: The Right of
Setoff
Setoff policies can vary from bank to bank, but in general, banks aren’t required
to provide a customer with advance notice that they’re going to take money from a
cash account as payment for another account. There are also typically no
restrictions, other than the amount that a customer owes on overdue accounts, on
how much money a bank can withdraw.
Seizing money through setoff, however, is usually reserved for a last resort, when
other attempts at collection have failed, says David Oliver, a senior vice
president of marketing and communications with the Georgia Bankers Association.
“We don’t do this without lots of attempts to communicate with our customers and
try to work things out,” Jay Lawrence, Atlanta spokesman for Wachovia, told
The Atlanta Journal-Constitution. “When this happens, we don’t like to do
this. We want our customers to succeed.”
Lawrence declined to comment on the Hugheses’ case except to say that bank records
differ from the version of events given by the couple.
Borrower Believed Her Private Student Loan Was in Deferment
Hope Hughes had taken out three student loans on her way to
a marketing degree from Kennesaw State University: two government-backed federal
college loans and one non-federal private student loan through Campus Partners, a
private education loan program offered by Wachovia.
Hope said she thought she had a six-month grace period after she graduated last
May before she had to begin paying back her student loans.
“After several rounds of calls and faxes to prove she graduated in May 2009,
not December 2008, as the bank believed, and a last-ditch application for a
deferment, she thought things were settled,” The Atlanta
Journal-Constitution reported.
But in January of this year, Wells Fargo apparently wrote off the Wachovia private
loan as a defaulted student loan, sending it to collections. Hope began receiving
bills for $11,338.60 — the total student loan amount, plus interest, fees,
and penalties.
In early April, after the Hugheses had already encountered the problems with their
Wells Fargo debit card, they received a letter notifying them that the bank had
exercised its right of setoff and taken the money from their checking account to
apply toward Hope’s allegedly defaulted student loan.
The balance of the private loan, nearly $7,300, is still outstanding.
In the meantime, Hope and Matt have had to dip into his 401(k) account, put
personal effects up for sale on Craigslist, and negotiate with their other
creditors in order not to fall behind on their home and car loans, which are also
held by Wells Fargo.
“We are so far behind,” said Hope. “I don’t want anybody else to go through what
we’ve been through. … I was blind-sided.”
Bank-Based Private Student Loans Hold Out Convenience … and
Vulnerability
As banks have expanded their services from simply being repositories for customer
cash to offering everything from home loans and car loans to credit cards,
insurance, and student loans, customers have increasingly consolidated their range
of financial needs with a single institution. This one-stop banking, or
“relationship” banking, has grown over the past 30 years.
To their advantage, customers may be able to qualify for lower interest rates or
preferred services when they take out additional loans or lines of credit with a
bank where they already have an established relationship.
On the other hand, these customers leave themselves open to their bank being able
to seize their cash, should they ever fall behind on one of those loans or lines
of credit — a situation in which more and more families are finding
themselves as the current recession and high levels of unemployment drag on.
“Our counselors are seeing more and more examples,” said John McCosh, spokesman
for the Consumer Credit Counseling Service of Greater Atlanta, a nonprofit
financial counseling agency. “When people come to us and we go through their
budget and various credit accounts and bank accounts to help them get an overall
picture of their finances, … and if we see that there is any vulnerability
because someone has a delinquent account at the same place where they have their
cash reserves, we will point out that it’s a vulnerability.”
Hope Hughes went to Wachovia for her student loan because she and Matt had banked
there for 10 years, taking out their home and car loans there as well.
Wells Fargo “may have had a right legally” to seize the cash from her checking
account, Hope said. “Ethically, should they have done it? No. Should they have
wiped out my entire bank account? Absolutely not.”
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