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Does the Military Lending Act (MLA) permit a bank to exercise the right of offset against a checking for a past due loan account?

Yes. ABA had sought clarification that servicemembers are permitted to obtain loans that allow lenders to apply the right of set off. The Department of Defense’s revised Interpretive Rule released in December 2017 adds a clarification to Question and Answer 18 that lenders may exercise a “right arising out of a security interest a borrower grants to a creditor to take a security interest in funds deposited within a covered borrower’s account at any time.” This appears to permit lenders to exercise a right of set-off provided the borrower agrees and it is otherwise permitted by law. (July 2018)

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