Questions and Answers

On the Reg Z disclosure, we have been checking the box to indicate we are taking a security interest in the consumer’s "deposit accounts and other rights to the payment of money from [lender]" because we have a right of set-off.  Recently I read that we should only check that box if we are taking the deposit account as collateral.  Which is correct?

The disclosure refers to the right of setoff. Regulation Z requires that you disclose security interests you are taking. The right of setoff is functionally similar to a security interest. Unfortunately, neither the Regulation nor the Commentary is clear about whether setoff should be disclosed as a security interest. The Commentary does say the following, however: “If the creditor is unsure whether a particular interest is a security interest under applicable law (for example, if statutes and case law are either silent or inconclusive on the issue), the creditor may at its option consider such interests as security interests for Truth in Lending purposes.”

So, unless it’s clear under your state law that setoff is not a security interest, you’re probably safest in checking the box.

If you’re taking a security interest in a particular deposit account, such as an assignment of a certificate of deposit, you should disclose that specifically.

(Posted: 06/10/2008)

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