When an overdraft facility on a current account runs out and the customer fails to pay the amount owed, the firm takes money from the customer’s savings account to reduce or clear the debt.
Or, if a customer fails to make credit card or mortgage payments, bank may use available funds from that customer’s
current or
savings
account
to make the missing
payments, thereby
helping the customer to avoid extra interest or charges.
Bank has a
right, but not a duty, to look at a customer’s overall position and to ‘combine’ the accounts held by that customer. This is sometimes called a right of ‘set off’ or a right to ‘combine’ accounts. A bank has this as a
general right, whether or not it mentions the right in the account terms.
To exercise right of set off the the following feature must be present
I. Mutual debt must be
certain: before excercising right of set –off the claim and the counter claim
must be determined accurately
II. Debt must be due: only those debts, which are due and recoverable on the date of set off, can be subject of set off.