When you borrow from a bank where you also keep your day-to-day cash, you might be opening yourself up to problems down the line. Most banks have a right of setoff, which means they can tap other accounts you hold with them to repay themselves money you owe. For a woman in Atlanta, this meant Wells Fargo legally drained her checking account without warning, leaving her and her husband with no cash and $385 in overdraft fees, due to some ongoing confusion over a student loan.

Hope Hughes said she thought she had six months to begin paying back her loans after her May [2009] graduation from Kennesaw State University.

[…]

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. Then in January, the bank apparently wrote off the loan, meaning it was sent to its collections department. She began receiving bills for the total amount, plus interest and fees: $11,338.60.

By April 1, the Hugheses’ checking account showed the bank deducted $140 in overdraft fees, even though it still held $4,302. The next day, the bank registered an “account transfer, zeroing out the account, and then charged $245 more in overdraft fees.

A few days after that, the Hugheses received a letter from Wells Fargo saying they were eligible for “a considerable settlement reduction” on the loan. The next day, yet another letter advised them the bank had exercised its right of setoff. The balance of the loan, nearly $7,300, is still due.

The bank says things didn’t happen the way the Hughes have explained it, but won’t comment further.

The point, though, is that if you decide to do all your banking at one place, there’s a trade-off: you might find better rates, but the bank will make sure to take whatever you owe it first should you run into financial trouble.

“Suddenly, bank account was gone” [AJC] (Thanks to Jim!)

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