Last updated: November 6, 2025 (Philippine context). This article is for general information only and not legal advice.

Executive summary

Yes—a Philippine bank may apply your deposit to your outstanding credit card debt through the doctrine of set-off (also called compensation) if strict legal conditions are met and the contract allows it. But there are important limits and exceptions:

The debts must be mutual, due, demandable, and of the same kind (money vs. money).
Contractual clauses in the cardmember agreement and deposit/account terms often authorize unilateral set-off; courts generally uphold these if clear and not unlawful.
Special or third-party interests (e.g., trust/escrow funds, joint accounts, funds under garnishment) block set-off.
Different currencies usually prevent legal compensation unless a contract allows conversion.
Notice, transparency, and fair-dealing rules apply under the Financial Consumer Protection Act and Bangko Sentral ng Pilipinas (BSP) regulations.
In a bank closure, valid set-off as of the receivership date is generally recognized, which reduces the insurable balance with PDIC.

Below is a full, practical guide.

1) The legal backbone: “compensation” and the bank–depositor relationship

Civil Code “compensation” (set-off)

Under the Civil Code, legal compensation extinguishes two obligations to the concurrent amount when:

each party is a principal debtor and a principal creditor of the other;
both debts are money (or the same kind), due, demandable, liquidated, and determinate; and
there is no retention or controversy by a third person notified to the debtor before compensation.

In banking, the depositor is creditor of the bank (the bank owes you the deposit), while the cardholder who owes unpaid credit card charges is debtor to the bank. When card debt is already due, legal compensation may arise—but only if the technical requisites are satisfied.

Contractual set-off (what most banks rely on)

Most account-opening forms and cardmember agreements contain “right to set-off,” “right to combine accounts,” or cross-default clauses authorizing the bank to unilaterally debit any of your deposits to pay any of your obligations to the bank (sometimes including obligations to affiliates). Courts generally enforce clear stipulations, provided they are not unconscionable and do not violate law or public policy.

Key takeaways

Legal compensation operates by law if all requisites are present.
Contractual set-off can operate even if a legal requisite is missing (e.g., different maturity dates), so long as the contract clearly allows it and no statute forbids it.

2) When can a bank set off a deposit against credit card debt?

Typical “green-light” scenarios

Same customer, same bank.
Debt is due and demandable. Your credit card account is in default (missed payment beyond grace period, acceleration per contract).
Clear set-off clause. Your account/card terms authorize the bank to debit deposits to pay any obligations.
Funds are ordinary deposits. Not held in trust, not escrow, not payroll held for others, not subject to court processes.
Same currency (PHP vs. PHP).

In these cases, banks commonly sweep funds from savings, current, or time deposits (pre-terminating the time deposit if the contract allows).

3) Limits and common defenses against set-off

Even with a set-off clause, the bank may be barred or restricted in the following:

Funds not really yours (special/fiduciary deposits).
- Trust, escrow, or agency funds; deposits earmarked for a specific purpose; client funds in a lawyer’s client account—these are not the depositor’s free and beneficial property. Courts have consistently rejected set-off of such funds.
Joint accounts.
- “A and B” (joint) accounts cannot be debited for A’s individual credit card debt unless B is also liable (e.g., co-debtor) or the contract clearly authorizes debiting the joint account. Absent consent, set-off risks violating the co-depositor’s property rights.
- “A or B” (either) accounts are trickier but still risky to set off against one party’s separate debt—banks generally proceed only with robust contractual authority and proof of mutuality.
Funds subject to third-party claims or court processes.
- Garnishment, attachment, hold orders, or liens notified to the bank before set-off defeat compensation; the bank effectively holds for the court/claimant and may not apply funds to its own credit.
Different currencies (PHP vs. USD, etc.).
- Legal compensation requires same kind of obligation. Foreign Currency Deposit Unit (FCDU) accounts are separate creatures under special laws; without a contractual conversion right (or your consent), set-off is generally improper. Even with a clause, banks typically convert at the prevailing market rate specified in the contract.
Not yet due / unliquidated debts.
- If the credit card balance is not yet due (still within due date or dispute pending), legal compensation does not arise. Contractual set-off may still permit application only if the clause expressly covers unmatured/accelerated obligations.
Supplementary card usage.
- Principal cardholder is usually solidarily liable for supplementary cards. Banks can set off the principal’s deposits. But debiting a supplementary cardholder’s personal deposit for the principal’s debt typically requires that the supplementary is also solidarily liable under the contract.
Payroll and social protection funds.
- If the deposit is your personal payroll account, there’s no automatic legal shield. But if the funds are employer’s payroll fund (employer’s name), it’s not yours—set-off is improper. Government cash transfers or SSS/GSIS pensions in your account are your funds; they’re not automatically exempt, though consumer-protection scrutiny for hardship/unfairness can apply.
Breach of disclosure / unfair practice.
- Even when legally allowed, opaque or surprise set-offs can be attacked under financial consumer protection rules (see §6).

4) Time deposits and pre-termination

If your money sits in a time deposit, the bank commonly needs to pre-terminate (often with penalties) to apply proceeds to the card debt. Whether it can do so unilaterally depends on:

Contract text (does it allow pre-termination for set-off?), and
Whether the debt is due and the bank has a cross-default or acceleration right.

Where permitted, the bank usually: (a) pre-terminates; (b) applies net proceeds (after charge/penalty) to your card balance; (c) notifies you.

5) Cross-bank and affiliate set-off

Set-off only works where the same legal entity is both your debtor (the deposit) and creditor (the card debt). A deposit with Bank A cannot be legally set off against a credit card with Bank B, unless:

Bank B has a contractual assignment or intercompany agreement and your contract authorizes set-off across affiliates/subsidiaries; or
The deposit was pledged or assigned as security.

Even then, operationally the funds must move by authorized debit, not by “operation of law” compensation.

6) Regulatory overlay: disclosure, fairness, and privacy

Financial Consumer Protection

The Financial Consumer Protection Act (RA 11765) and BSP rules require clear disclosure of material terms (including set-off), fair treatment, and effective complaints handling.
Expect banks to spell out set-off in bold/ALL-CAPS within terms; hidden or ambiguous wording invites regulatory risk.

Bank Secrecy & Data Privacy

RA 1405 (Bank Secrecy) bars disclosure of deposit details to third parties; internal application of set-off does not by itself constitute a disclosure.
Data Privacy Act permits processing necessary for contract performance and legitimate interests, but banks must still ensure proportionality and notice.

7) Litigation and jurisprudence—core themes from the courts

Philippine jurisprudence has, over decades, articulated consistent themes:

Deposits are debts of the bank; credit facilities are debts of the customer. Mutuality enables set-off when due.
Special/fiduciary deposits are off-limits. Courts refuse set-off where the bank knows or should know funds are held for another or for a specific purpose.
Joint accounts cannot be debited for one party’s separate debt without consent or clear stipulation; otherwise, it impairs the co-owner’s rights.
Prior garnishment/attachment defeats set-off.
Foreign currency deposits are not automatically nettable against peso debts without authority to convert.
Clear, express clauses permitting unilateral set-off and account combination are generally upheld—especially in sophisticated, arms-length relationships—but ambiguities are construed against the bank as the contract drafter.

(Exact case names and citations are omitted here for readability; the principles above are well-established in Supreme Court decisions on bank–client compensation and special deposits.)

8) PDIC and failing banks: how set-off affects insurance

Under the PDIC law, when a bank is closed and placed under receivership, valid set-off existing as of closure is recognized. Practically, this means:

Your deposit balance is first netted against matured obligations you owe the bank, and only the net—if positive—counts toward deposit insurance.
Claims to undo a pre-closure set-off face steep hurdles unless you can show it was invalid (e.g., special funds, not due, no authority).

9) Credit card specifics: what to check in your paperwork

When a bank sets off deposits against a delinquent card:

Default/acceleration clause. Did an event of default occur? Was the entire balance accelerated?
Set-off/combination clause. Does it cover any obligation “whether direct or contingent, due or not yet due,” and any account “whether current, savings, time, or FCDU”?
Cross-affiliate language. Some groups reserve rights across their bank, thrift, and credit card subsidiaries.
Currency conversion. How is the rate determined if funds are in USD and debt is in PHP (or vice versa)?
Notice. Were you informed after (or before) the debit? Transparency matters for consumer-protection compliance.
Supplementary cards. Is the principal solidarily liable? Are supplementaries also solidarily liable per the contract?
Fees/penalties. If a time deposit was pre-terminated, was the penalty computed under the stated schedule?

10) Practical scenarios

Ordinary case (valid set-off): You default on your credit card. The same bank holds your PHP savings. Account terms have a broad set-off clause. Bank debits your savings and sends notice. Likely valid.
Joint account complication: Your card is solely yours; your largest balance is in a joint “A and B” account with your spouse. Without spousal consent or a clause expressly covering joint accounts, a set-off is high-risk/invalid to the extent of the co-owner’s share.
USD time deposit vs. PHP card debt: Legal compensation fails for different currency. If the contract allows conversion and pre-termination, the bank may convert and apply net proceeds; otherwise, no.
Funds under garnishment: A third party has a writ of garnishment on your account before the bank’s set-off. The bank cannot set off; the court process prevails.
Escrowed/entrusted funds: Money deposited for a client (you as trustee/agent). The bank’s set-off would be improper because the funds are not beneficially yours.

11) Consumer playbook: what to do if your balance was swept

Ask for documents. Request your deposit ledger, card ledger, and the contracts (account opening, card terms).
Identify a blocker. Look for joint ownership, special/escrow nature, different currency, not-yet-due status, or prior court claims.
Demand an explanation. Point to contract language—or lack of it. Ask for the legal basis, computation, conversion rate, and penalties (if any).
Use the bank’s complaint channels. Philippine banks must keep a Consumer Assistance Mechanism and respond within reasonable timelines.
Escalate if needed. File with the BSP’s Financial Consumer Protection channels (and/or PDIC if a closed bank is involved).
Consider counsel. For sizeable sums or complex facts (e.g., joint accounts, fiduciary funds), seek a lawyer’s advice and consider injunctive relief if funds remain at risk.

12) Drafting tips for individuals and businesses

Opt-out or narrow clauses where possible (e.g., exclude joint accounts or FCDU deposits).
Segregate fiduciary funds in separately titled accounts (e.g., “XYZ Law Office – Client Funds”).
Avoid comingling personal and entrusted funds.
Mind currency exposure—keep foreign-currency deposits separate if you want to reduce set-off risk for PHP obligations.
For spouses/partners, document ownership shares of joint accounts.
For businesses, board-approved policies on banking authorities can mitigate unauthorized set-off exposure.

13) Frequently asked questions

Q: Can a bank set off without telling me first? A: Contracts often allow unilateral application without prior notice, but post-debit notice is standard and transparency is expected under consumer-protection rules.

Q: Can they take my entire balance? A: Only up to the amount due, plus authorized fees/penalties. Any excess must remain or be returned.

Q: What if I’m disputing the card charges? A: Contested, unliquidated amounts typically do not meet the requisites for legal compensation; contractual set-off might still apply only if the clause explicitly permits it—banks should tread carefully in active disputes.

Q: Do installment plans change anything? A: If an event of default accelerates the entire balance under the contract, the bank may treat all installments as due; otherwise, only matured installments are demandable.

Q: Is my deposit insurance affected? A: In a bank failure, valid set-off before closure reduces the net deposit considered for PDIC insurance.

14) Bottom line

A bank’s right of set-off in the Philippines is real and enforceable, especially where clear contractual authority exists and the debt is due. Yet the doctrine is not absolute: it stops at special funds, joint/third-party interests, different currencies (absent agreement), and procedural defects (e.g., lack of due notice or unfair practice). If your funds were swept, audit the facts and the paperwork—many set-off controversies turn on contract wording and who truly owns the money.

If you want, I can adapt this into a one-page client memo or a checklist you can use when reviewing bank terms.