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Posted by: tdt -

“I do not ever remember signing a banking contract with my bank and now I’m out nearly $3,000 that was in my savings account.”

    Question:  I had a car loan with my bank that I defaulted on.  I was laid off from my job and I just couldn’t keep up with the payments.  I signed the car back over to my bank and I even took my car to them rather than having it repossessed.  That was almost a year ago.  I never changed my bank to any other.  I went back to work and I started putting extra money into my savings account so that I could save up for another car.  I just found out that the bank took all of the money in my savings account and applied it to the deficit I owed on the car that I defaulted on.  How can my bank, without my permission, take my hard earned savings?  Is that legal?  They told me that not only did they have the right to do it but that I gave them permission in my banking contract with them.  I do not ever remember signing a banking contract with my bank and now I’m out nearly $3,000 that was in my savings account.

    Answer:  Banking is covered by both Federal Law and Texas State Law.  In Texas laws regarding banking are found in the Texas Finance Code.  Chapter 65 of the Finance Code covers  savings accounts specifically.    Section 65.003 states, “(a)  Each holder of a savings account must execute a savings contract.  The contract must specify: (1)  any special terms applicable to the account;  and (2)  the conditions on which withdrawals may be made. (b) The association shall hold a savings contract in the records pertaining to the account. (c) A savings contract pertaining to a savings account of a public or governmental entity must provide that the holder of the account may not become a member of the association.”  

    When a person opens up a banking account with a financial institution they must sign documents, one of which is the banking contract.  Because of the nature of the checking or savings account in that they are so commonplace, it is easy to overlook the fact that a contractual relationship has been entered into.  The contractual relationship is important because by creating it, both parties are protected.  Both parties, the bank and the individual, have certain rights and duties based upon the contractual relationship entered into.  The Finance Code requires a bank to prepare the contract for the patrons review and signature.  Most banking contracts are the same from bank to bank.

    When a bank is the institution of a person’s savings account and a loan account they generally protect themselves within the contract against loss by putting in language that provides the bank with a lien against the savings account for any outstanding loans owed to the bank by the borrower.  Sec. 65.011.  stated, “(a) Without further agreement or pledge, an association or a federal association doing business in this state has a lien on all savings accounts owned by a member to whom or on whose behalf the association has advanced money by loan or otherwise.”  So right from the beginning of creating the savings account, the banking institution likely has a lien against the savings account for any money that the bank has loaned to that same person.  The Finance Code further states, “(b) On default in the payment or satisfaction of the member’s obligation, the association, without notice to or consent of the member, may cancel on its books all or part of the member’s savings account and apply that amount to payment of the obligation.”  

    The terms within the contract that grant a lien against the savings account for unpaid money owed to the bank is very powerful.  It allows the bank to take “self help” measures for repayment without having to go through court proceedings.  In the end, it costs much less for both the bank and the individual because no court costs are accrued, interest or attorney’s fees in connection with getting the right to take money from a particular savings account.  The only way to avoid having one’s savings taken to satisfy a debt to the same institution is to keep savings accounts and loan accounts separate with different institutions.  

    Unfortunately it is futile to attempt to get redress for the money that was taken from the savings account because the bank was entitled to take the money, and without notice to its customer.  That is a hard lesson learned to the individual who has been saving for months in an already difficult time in their life.  Keep in mind that certain entities in Texas may also take money from a person’s savings account without warning.  The Office of the Attorney General may garnish any account owned by a person who owes child support, even if the money in the account was contributed by a spouse or other joint owner of the account.  

    Had the bank that owed the car loan not been the same as the bank that held the savings account, the bank could not have taken the savings funds as presented in this question.  Banks that do not have the savings account contractual relationship and the loan contract may not contact another bank to take money within that institution to satisfy the debtor’s obligation.

    This article is meant for educational purposes only and not as a substitute for sounds legal advice.  Please direct questions to Ask the Lawyer to robin@robinscottlaw.com or online on Facebook, the Dalhart Texan home page.