Loan Overdue, Bank "Quietly" Transfers All Pension Funds? Expert: Must Reserve Living Expenses

21st Century Business Herald Reporter Guo Congcong

Recently, multiple borrowers have reported to 21st Century Business Herald that after personal loans become overdue, banks have directly deducted funds from their other accounts without court filing or notification. Some cases even involved deductions from pension accounts.

Mr. Wu, 65 years old, told this reporter that he is a retired worker who receives his pension monthly through a social security card (also used as a salary card). Starting in 2025, Mr. Wu found that his monthly pension of 3,626 yuan was fully deducted by the bank to cover debts. Upon inquiry, the deduction was used to repay a personal loan from many years ago. After multiple negotiations failed, Mr. Wu has now had over 40,000 yuan deducted in total.

A similar situation occurred with Ms. Zhou. She is not the direct borrower but provided a guarantee for a friend’s loan. After her friend defaulted, the bank deducted part of her pension from her account. “I knew there were risks in guaranteeing, but I didn’t expect the bank to directly deduct from my pension. If I had known, I would have been more cautious about the decision,” said Ms. Zhou.

According to multiple sources, the 21st Century Business Herald found that in loan agreements signed by borrowers, there is usually a clause stating, “In case of overdue, the bank has the right to deduct the owed amount from all accounts opened by the borrower at the bank.” On one side are the bank’s contractual terms and debt collection rights; on the other side are the procedures for deduction compliance and the basic living security of retirees. The issue of the boundaries of the bank’s right to deduct overdue debts has once again raised social concern over the protection of financial consumers’ rights.

Many industry experts interviewed by this reporter stated that overdue situations generally fall into two categories: one is direct lending between the borrower and the bank; the second involves debts arising from guarantees or third-party institutions.

For personal loan overdue cases, based on contractual terms, banks do have the right to dispose of funds in other accounts of the borrower. However, banks are required to fulfill the obligation of providing notice and explanation when signing the contract, and should also follow notification procedures during actual deductions. For debts arising from guarantees or third-party loans, banks must go through court judgment procedures and obtain an effective legal document before applying enforcement; they cannot deduct funds independently.

Experts also emphasized that regardless of the situation, pension funds are different from ordinary deposits; they serve as social basic security and should, in principle, reserve basic living expenses for retirees to protect their fundamental rights to survival.

Regarding the issue of other account funds being deducted for debt repayment, the 21st Century Business Herald consulted multiple industry insiders and experts.

An employee from a personal loan department told this reporter that loan agreements typically include a clause: “In case of overdue, the bank has the right to deduct the owed amount from all accounts opened by the borrower at the bank (including branches).”

He showed a typical formulation: “In case of overdue, the lender has the right to deduct from the borrower’s accounts (including foreign currency accounts) at the bank (including branches) the corresponding amounts to repay principal, interest, penalty interest, default fees, and costs of realizing the debt.”

The staff member added that this clause usually appears in the second part of the loan contract, “which is a confirmed part of the agreement when signing, and the bank’s operations are based on this contractual provision.”

What procedures must the bank follow for deductions? This mainly depends on two situations: one is direct lending between the borrower and the bank; the second involves debts from guarantees or third-party platforms such as consumer finance companies.

Lawyer Yu Qing from Beijing Shengchi Law Firm analyzed that for overdue personal loans, based on contractual clauses, banks do have the right to dispose of other accounts of the borrower. But he also emphasized that banks must fulfill the obligation of providing notice and explanation when signing the contract, and should also notify the borrower during actual deduction procedures.

“Most loan contracts are standard forms, and such clauses are material terms related to the borrower’s interests. According to law, the party providing standard clauses should reasonably alert the other party and explain the terms as required,” Yu Qing explained.

Some borrowers told this reporter that during signing, staff mainly explained the loan amount, interest rate, and repayment period, and they had no impression that the contract included a deduction clause. “There were many clauses, and I didn’t notice this one when signing,” said one borrower.

Another bank staff responsible for post-loan collection explained: “Loan contracts are legal documents, and both parties should abide by them. Deductions are not meant to embarrass the customer but to recover owed funds.”

Another scenario involves debts arising from guarantees or loans from third-party consumer finance platforms. Wang Hongying, a master’s supervisor at Peking University, pointed out that in such cases, banks must go through court judgment procedures to deduct funds from the borrower or guarantor’s accounts. After obtaining a legally effective document, they can apply for enforcement; they cannot deduct funds on their own.

In fact, courts have previously ruled on similar cases.

In November 2024, Mr. Sun suddenly received a bank message stating that 16,000 yuan in deposits had been deducted. It turned out that Mr. Sun had applied for a 100,000 yuan loan in 2009, which had not been fully repaid. The bank deducted funds from his other accounts in accordance with the loan contract.

Mr. Sun immediately contacted the bank to request a refund. After being ignored, he sued in court. The court held that the loan contract clearly stipulated that the lender could deduct from any of the borrower’s accounts. This clause reflected the true intention of both parties, and since there was no specific deadline for deduction in the contract, the bank’s deduction was consistent with the contract and legally supported. The court dismissed Mr. Sun’s lawsuit.

This case indicates that, under clear contractual agreements, judicial practice generally recognizes the bank’s right to deduct from ordinary accounts.

Compared to deductions from regular bank accounts, full deduction or freezing of pension accounts has attracted more attention, raising legal boundary and rights protection issues.

Mr. Wu, who had his pension deducted for debt repayment, told this reporter: “I did sign the loan agreement, but now I am retired and rely on my pension for living. The bank made no notification, nor did I see any court judgment, yet all my pension was deducted. This makes me question the bank’s procedures.” His experience is not isolated; several interviewees said that pensions are their main source of income in old age, and full deduction would threaten their basic livelihood.

In cases where there is a loan agreement, can pensions be deducted or frozen? How much can be deducted? The 21st Century Business Herald consulted multiple experts on this issue.

Lawyer Ye Miao of Shanghai Dehe Hantong Law Firm pointed out that pension funds are basic social security funds and are protected by law. In principle, they cannot be directly deducted by banks. Even during enforcement, courts usually reserve a portion for basic living expenses.

Yu Qing explained from legal and judicial perspectives that, according to the Civil Procedure Law and relevant judicial interpretations, especially the Supreme People’s Court’s 2014 reply regarding issues from Zhejiang High People’s Court, pensions owed to the enforcement subject are considered fixed income from third parties and are part of the property subject to enforcement. Courts have the authority to freeze or deduct such funds, but before doing so, they must reserve necessary living expenses for the debtor and their dependents.

How to determine the amount of reserved expenses? Wang Hongying believes that the reserved amount should consider local minimum living standards, the physical condition of the retiree, and necessary monthly medical expenses for conditions like hypertension and diabetes. Additionally, for dependents such as elderly or children without income, basic living costs should also be reserved. The specific standards for living, medical, and dependent expenses should be negotiated with the creditor before deduction.

Courts have issued relevant rulings on enforcement involving pension accounts. For example, in a typical case, Mr. Liu, a retired employee, had provided a guarantee for a 3.9 million yuan loan for others. When the loan defaulted, the bank sued him. After a court’s effective judgment, the bank applied for enforcement and froze Mr. Liu’s pension account in June 2024.

Mr. Liu filed an objection, claiming that the account was his only source of income and that his family’s life was very difficult. He requested the court to stop enforcement. The court reviewed and found that although the pension account was frozen, necessary living expenses had been reserved, and only the remaining balance was frozen or deducted. This was in accordance with the law, so his objection was dismissed.

This demonstrates that courts generally adopt a “reserve living expenses before enforcement” approach when executing pension accounts. Yu Qing reminded that if banks deduct without reserving necessary living expenses, borrowers can file lawsuits to recover the excess funds.