RICK L. KNUTH is the keeper of the Banking and Finance Law Spotlight Site.

Rick's practice focuses on assisting institutional and private lenders and borrowers in asset-based loan transactions, real estate financing, accounts receivable and inventory-based financing. He has over 30 years experience in loan documentation, mortgage and trust deed foreclosures, loan participations, credit opinion letters, workouts, and insolvency proceedings of all kinds. He counsels banks large and small in all aspects of their commercial credit relationships.

Look for postings by the other attorneys in our Commercial Lending and Banking Practice Group.

Keven M. Rowe (Group Leader)
Tom Berggren
Rick L. Knuth
Kyle V. Leishman
James W. Peters
Susan B. Peterson
Jacob Redd
George R. Sutton
Glen D. Watkins
Randon W. Wilson

Published Articles

"Fraudulent Checks- the 'Same Wrongdoer' Defense"
by Rick L. Knuth

Originally Published in Utah Banker Magazine Fall 2013.

Important Resources
A Bank's Right of Set-off Against a Deposit Account
Posted on Jul. 23, 2015

Let’s get very clear about one thing: When you deposit money in a bank, your money doesn’t sit in the bank’s vault. It becomes the bank’s money upon deposit. The bank simply owes it back to you or to your order upon demand (a withdrawal or presentment of a check). You, in other words, have become the bank’s creditor for the amount of your deposits.

When you also have a loan from that same bank, the bank is your creditor. And where there are mutual debts, that is, where the parties are both creditors and debtors of each other, the common law and practically all bank deposit agreements allow the debts to be set off against one another. So, if the depositor’s loan from the bank goes into default, the bank can simply credit the deposit account (the bank’s debt to its customer) against the amount owed on the loan (the customer’s debt to the bank).

A bank can also exercise its rights of set-off even where the depositor has filed bankruptcy. The bank merely has to freeze the customer-debtor’s bank account to prevent the debtor from cleaning out the bank account, and then ask the court for relief from the automatic stay to implement the set off.

There are a few exceptions to a bank’s right of set-off. For instance, there are regulatory restrictions on banks set off for consumer loans incurred for personal, family or household purposes, as opposed to business loans. Also, the debtors must be identical. The customer on the deposit account must be the same person as the borrower on the bank alone, and not acting in a different capacity, such as a trustee, an executor or an escrow agent.

The right of the bank to set off is as old as the hills, and makes perfect sense. However, lenders and borrowers should be alert and careful that the right is legitimately exercised.

Post Comment:





Rick Knuth is a member of the American College of Mortgage Attorneys.

George Sutton was recognized in 2012 as Utah Attorney of the Year in Financial Services Regulation Law by Best Lawyers in America.

Rick Knuth was recognized in 2012 as Utah Attorney of the Year in Banking and FinanceLaw by Best Lawyers in America.

All eligible attorneys in this group are ranked AV Preeminent by Martindale-Hubbell.

community and industry outreach


Utah Association of Financial Services

  • Associate Member and Convention Sponsor

Utah Banker's Association

  • Convention Sponsor