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A set-off clause is a legal clause that gives a lender the authority to seize a debtors deposits when they default on a loan. A set-off clause can also refer to a settlement of mutual debt between a creditor and a debtor through offsetting transaction claims. This allows creditors to collect a greater amount than they usually could under bankruptcy proceedings.Set-off clauses are written into legal agreements to protect the lender.A set-off clause allows the lender to seize assets belonging to the borrower, such as bank accounts, in the event of a default.Set-off clauses are also used by manufacturers and other sellers of goods to protect them from a default by a buyer.Set-off clauses give the lender the right of setoff—the legal right to seize funds from the debtor or a guarantor of the debt. They are part of many lending agreements, and can be structured in various ways. Lenders may elect to include a set-off clause in the agreement to ensure that, in the event of default, they will receive a greater percentage of the amount thats owed them than they might otherwise. If a debtor is unable to meet an obligation to the bank, the bank can seize the assets detailed in the clause.Set-off clauses are most commonly used in loan agreements between lenders, such as banks, and their borrowers. They may also be used in other kinds of transactions where one party faces a risk of payment default, such as a contract between a manufacturer and a buyer of its goods. The Truth in Lending Act prohibits set-off clauses from applying to credit card transactions; this protects consumers who decline to pay for defective merchandise purchased with their cards, using whats known as a chargeback. A lending set-off clause is often included in a loan agreement between a borrower and the bank where they hold other assets, such as money in a checking, savings, or money market account, or a certificate of deposit. The borrower agrees to make those assets available to the lender in the case of default. If assets are held at that lender, they can be more easily accessed by the lender to cover a defaulted payment. But a set-off clause may also include rights to assets held at other institutions. While those assets are not as readily accessible to the lender, the set-off clause does give the lender contractual consent to seize them if a borrower defaults.A set-off clause might be also part of a supplier agreement between the supplier, such as a manufacturer, and a buyer, such as a retailer. This type of clause can be used in place of a letter of credit from a bank and gives the supplier access to deposit accounts or other assets held at the buyers financial institution if the buyer fails to pay. With a set-off clause, the seller can obtain payment equivalent to the amount thats owed them under the supplier agreement.Borrowers should be aware that agreeing to a set-off clause might mean having to forfeit more of their assets than they would in a bankruptcy proceeding.Set-off clauses are used for the benefit of the party at risk of a payment default. They give the creditor legal access to a debtors assets at either the lenders financial institution or another one where the debtor has accounts. Before signing a contract with a set-off clause, borrowers should be aware that it may result in the loss of assets they would have been able to retain through other means of debt settlement, such as bankruptcy.This shows grade level based on the words complexity. ˈsɛtˌɔf, -ˌɒf something that counterbalances or makes up for something else, as compensation for a loss.Accounting. a counterbalancing debt or claim, especially one that cancels an amount a debtor owes.Also called offset. Architecture. a reduction in the thickness of a wall. a flat or sloping projection on a wall, buttress, or the like, below a thinner part.something used to enhance the effect of another thing by contrasting it, as an ornament.Printing. offset (def. 7). WILL YOU SAIL OR STUMBLE ON THESE GRAMMAR QUESTIONS?Smoothly step over to these common grammar mistakes that trip many people up. Good luck!Fill in the blank: I cant figure out _____ gave me this gift.TAKE THE QUIZ TO FIND OUT First recorded in 1615–25; noun use of verb phrase set offset in motion, set-in sleeve, setireme, set-jetting, setline, setoff, seton, Seto Naikai, set on a pedestal, set one back, set one back on ones feetDictionary.com UnabridgedBased on the Random House Unabridged Dictionary, © Random House, Inc. 2022advantage, allowance, amends, atonement, benefit, bonus, bread, consideration, counterclaim, coverage, damages, defrayal, deserts, earnings, fee, gain, honorarium, indemnification, indemnity, meet(intr) to embark on a journey(tr) to cause (a person) to act or do something, such as laugh or tell stories(tr) to act as a foil or contrast to, esp so as to improvethat brooch sets your dress off well(tr) accounting to cancel a credit on (one account) against a debit on another, both of which are in the name of the same person, enterprise, etc(intr) to bring a claim by way of setoffanything that serves as a counterbalanceanything that serves to contrast with or enhance something else; foilanother name for setbackSee set back (def. 5)a counterbalancing debt or claim offered by a debtor against a creditora cross claim brought by a debtor that partly offsets the creditors claimSee also counterclaimprinting a fault in which ink is transferred from a heavily inked or undried printed sheet to the sheet next to it in a pileAlso called (esp Brit): offsetCollins English Dictionary - Complete & Unabridged 2012 Digital Edition © William Collins Sons & Co. Ltd. 1979, 1986 © HarperCollins Publishers 1998, 2000, 2003, 2005, 2006, 2007, 2009, 20121Give rise to, cause to occur, as in The acid set off a chemical reaction. Early 1600s2Cause to explode, as in They set off a bomb. Late 1800s3Distinguish, show to be different, contrast with, as in That black coat sets him off from the others in the picture, or Italics set this sentence off from the rest of the text. Late 1500s4Enhance, make more attractive, as in That color sets off her blonde hair. Early 1600s5Begin a journey, leave, as in When do you set off for Europe? Second half of 1700sThe American Heritage® Idioms Dictionary Copyright © 2002, 2001, 1995 by Houghton Mifflin Harcourt Publishing Company. Published by Houghton Mifflin Harcourt Publishing Company.FEEDBACK© 2022 Dictionary.com, LLC
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