Paying OD in Anticipation of SSA Deposit

Question:

Something in the back of my mind tells me it is against some Reg to go ahead and pay an overdraft from a person's DDA when we are expecting that OD to be reimbursed by their ACH deposit from Social Security. Could you please clarify this issue for me, with reference to the Reg or law? If I know which one, I can copy the chapter and verse and bring it up at training.

Answer:

You're undoubtedly thinking of the 9th Circuit's infamous decision in the Lopez case. Initially, that court held that a bank could not exercise its right of offset against a deposit of Social Security or SSI benefit funds to cover an overdraft that had been previously incurred by the benefit recipient. Fortunately, upon rehearing, they reconsidered and reversed their decision. You can get full details on the case in the Court Watch section of BOL.

First published on BankersOnline.com 08/02/04