Depository CreditorCredit Repair Definition
A financial institution, like a bank or credit union, that accepts deposits and also extends credit.
Definition
A depository creditor is a financial institution that performs two primary functions: accepting deposits from customers (like checking and savings accounts) and extending credit or loans to customers. Banks, credit unions, and savings and loan associations are the main types of depository creditors. Because they hold customer deposits, these institutions often have certain rights or advantages when it comes to collecting debts owed by their depositors, such as the right of offset (using funds from a deposit account to cover a defaulted loan owed to the same institution). They are heavily regulated by government agencies like the FDIC, NCUA, and the Federal Reserve.
Frequently Asked Questions
What distinguishes depository creditors from other creditors?
The key distinction is their ability to accept deposits insured by government agencies (like FDIC or NCUA). Non-depository creditors, such as finance companies, mortgage lenders (that don't take deposits), or retailers offering credit, primarily lend money but do not hold customer deposits.
What is the 'right of offset' for depository creditors?
The right of offset (or setoff) allows a depository institution (bank or credit union) to seize funds from a borrower's deposit account (like checking or savings) held at that same institution to cover payments due on a defaulted loan owed to that institution. This right is typically outlined in account agreements but is also subject to state and federal limitations (e.g., usually cannot offset Social Security benefits).
Are depository creditors subject to specific regulations?
Yes, depository creditors are subject to extensive regulation regarding capital requirements, lending practices, consumer protection (like Truth in Lending Act, Fair Credit Reporting Act), deposit insurance, and safety and soundness, overseen by agencies like the Federal Reserve, OCC, FDIC (for banks), and NCUA (for credit unions).
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