Bank Set-Off Rights on Deposits for Credit Card Debts in the Philippines

I. Nature and Concept of Banker's Right of Set-Off

The banker's right of set-off is the common-law-derived, Civil Code-recognized right of a bank to apply the credit balance in a depositor's account against any matured debt owed by the same depositor to the bank, even without prior notice or consent, provided the requisites of mutuality, maturity, and liquidity are present.

In Philippine jurisprudence, the right is firmly established and repeatedly upheld by the Supreme Court in cases such as Banco Español-Filipino v. Peterson (1913), Republic v. Bagaman (1981), Associated Bank v. Tan (2008), PNB v. CA (1997), BPI v. CA (2007), and Citibank v. Sabeniano (2006). The Court has consistently ruled that the relationship between bank and depositor is that of creditor and debtor under Articles 1953 and 1980 of the Civil Code, and the bank has a preferential right to apply the deposit to the debt when it falls due.

For credit card debts, the right of set-off is even stronger because credit card agreements universally contain express contractual set-off and pledge clauses that constitute conventional compensation under Articles 1281–1283 and 1279(5) of the Civil Code.

II. Legal Bases

1. Articles 1278–1290, Civil Code (Legal Compensation)
2. Articles 1281–1283, Civil Code (Conventional Compensation)
3. Articles 1980, 1953, and 1248, Civil Code (Depositum and Debtor's Preference)
4. Section 58, Republic Act No. 8791 (General Banking Law of 2000) – implied recognition of bank's right to protect its credit exposures
5. BSP Circular No. 398 (2003), Circular No. 941 (2017), and Circular No. 1098 (2020) on Credit Card Operations – all allow banks to include set-off clauses in credit card terms and conditions
6. Standard Terms and Conditions of all Philippine universal and commercial banks (BPI, BDO, Metrobank, Security Bank, RCBC, Chinabank, UnionBank, PNB, etc.) – uniformly contain clauses substantially similar to:

“The Bank shall have the right, without notice, to set-off or apply any or all deposits or funds standing to the credit of the Cardholder in any account with the Bank against any and all obligations of the Cardholder to the Bank, whether direct or indirect, primary or secondary, sole or solidary, present or future, contingent or matured, in whatever currency denominated.”

This clause has been upheld as valid and enforceable in numerous cases.

III. When the Credit Card Debt Becomes Subject to Set-Off

The debt becomes subject to set-off upon the occurrence of any of the following events, all of which accelerate the entire outstanding balance:

1. Failure to pay the Minimum Amount Due on or before the Payment Due Date
2. Closure or cancellation of the card (voluntary or involuntary)
3. Default under the Terms and Conditions
4. Death, insolvency, or filing of petition for suspension of payments by the cardholder
5. Any event that, in the bank's judgment, adversely affects the cardholder's ability to pay

Upon acceleration, the entire outstanding balance becomes immediately due and demandable (Article 1170, Civil Code in relation to the acceleration clause), satisfying the “due and demandable” requirement of Article 1279.

IV. Types of Deposits That May Be Set-Off Against Credit Card Debts

1. Peso current accounts / checking accounts – freely subject to set-off
2. Peso savings accounts – freely subject to set-off (the most common source)
3. Foreign currency savings/current accounts – freely subject to set-off, even if the credit card is peso-denominated (conversion at bank's selling rate on date of set-off)
4. Time deposits – only if already matured or if the terms and conditions expressly allow premature upliftment for set-off (most banks now include such clause)
5. UITF / mutual fund placements – generally not subject to set-off unless expressly pledged
6. Trust accounts or “In-Trust-For” (ITF) accounts – not subject to set-off against the trustee's personal credit card debt (Insular Bank v. Far East Bank, 1988; China Bank v. Ortega, 1973)
7. Corporate payroll accounts – not subject to set-off for the personal credit card debt of an officer or employee unless the officer is the beneficial owner

V. Joint Accounts and Third-Party Considerations

1. “And” joint accounts (requiring both signatures for withdrawal) – bank may still set off if one of the joint depositors is the credit card debtor, because the debtor has a pro-indivisible share in the deposit (Supreme Court in Traders Royal Bank v. CA, 1997, allowed set-off even in joint accounts)
2. “And/Or” joint accounts – even stronger basis for set-off
3. Deposits belonging to spouses – community or conjugal property deposits may be set off against the credit card debt of one spouse if the card was used for the benefit of the family (Article 121, Family Code) or if the debt is chargeable to the community/conjugal partnership
4. Deposits from third-party remittances (e.g., OFW remittances clearly intended for family support) – courts have occasionally disallowed set-off if the bank had actual knowledge of the special purpose (though this is the exception, not the rule)

VI. Effect of Bank Secrecy Laws (R.A. 1405, R.A. 6426, R.A. 8791)

The exercise of set-off does not violate bank secrecy laws because:

• No disclosure to third parties occurs
• The bank is merely transferring funds internally from one account to another of the same client
• The Supreme Court in China Banking Corporation v. Ortega (1973) and subsequent cases has explicitly ruled that set-off does not constitute an “inquiry” or “disclosure” prohibited by R.A. 1405

VII. Key Supreme Court Decisions Specifically Upholding Set-Off for Credit Card Debts

1. Citibank, N.A. v. Sabeniano, G.R. No. 156132 (October 16, 2006, en banc) – upheld bank's set-off of deposits against credit card and loan obligations
2. BPI Family Savings Bank v. Franco, G.R. No. 153926 (March 31, 2006) – set-off valid even without prior notice
3. Associated Bank v. Tan, G.R. No. 156940 (December 14, 2008) – bank may set off even if deposit is in another branch
4. Metrobank v. Chiok, G.R. No. 172652 (November 26, 2014) – contractual set-off clause upheld against credit card debt
5. BDO Unibank v. Yap, G.R. No. 213799 (July 5, 2017) – set-off valid even if credit card account was already charged off
6. Security Bank Corporation v. Great Wall Commercial Press, G.R. No. 219459 (January 15, 2020) – reaffirmed continuing validity of set-off clauses in credit card agreements

There is no Supreme Court decision prohibiting or limiting set-off against credit card debts when the standard clauses are present.

VIII. Practical Application by Philippine Banks (2025)

All major Philippine banks currently exercise set-off for credit card debts as a matter of routine collection policy:

• BPI and BPI Family – set-off executed within 24–48 hours after final demand
• BDO – automatic system set-off upon 90 days past due
• Metrobank – set-off upon 120 days past due or upon card cancellation
• RCBC – set-off upon charge-off (usually 180 days)
• Security Bank – set-off upon acceleration
• UnionBank – set-off even before legal action
• EastWest Bank, Chinabank, PNB – similar policies

Banks typically send a final demand letter stating: “Please be advised that should you fail to settle within seven (7) days, the Bank shall exercise its right of compensation/set-off against your deposits with any of our branches.”

Failure to pay triggers immediate set-off.

IX. Remedies of the Cardholder if Set-Off is Allegedly Wrongful

1. File a complaint for recovery of sum of money with damages
2. Seek preliminary attachment or injunction (very rarely granted because set-off is a preferred right)
3. File administrative complaint with BSP Consumer Protection Department (BSP usually rules in favor of the bank if the set-off clause exists)
4. Invoke Data Privacy Act only if bank improperly disclosed information (not applicable to internal set-off)

In practice, cardholders almost never recover amounts validly set off.

X. Conclusion

The banker's right of set-off against deposits for credit card debts is one of the strongest and most effective collection tools available to Philippine banks. It is grounded in both legal compensation (when the debt is due) and, more importantly, conventional compensation through iron-clad contractual clauses that have been uniformly upheld by the Supreme Court for over a century.

As long as the credit card terms and conditions contain the standard set-off clause — which every single issuing bank in the Philippines does — the bank may, at its sole option and without prior judicial process, apply the depositor-cardholder's funds to the credit card debt upon default and acceleration.

There is no statutory or jurisprudential restriction that meaningfully limits this right in the context of credit card obligations as of December 2025.