Someone's Entire Pension Was Quietly Seized by Bank After Loan Default, Expert Warns

Special Topic: 2026 March 15 Financial Complaint Exposure Platform

Recently, multiple borrowers have reported to 21st Century Business Herald that after their personal loans become overdue, banks directly deduct funds from other accounts under their name without court filing or notification. In some cases, pension accounts have also been deducted.

Mr. Wu, 65 years old, told 21st Century Business Herald that he is a retired worker who receives his pension monthly through a social security card (also used as a payroll card). Since 2025, Mr. Wu found that his monthly pension of 3,626 yuan was fully deducted by the bank to settle 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 happened to 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 funds. “I knew there was a risk in guaranteeing, but I didn’t expect my pension to be directly deducted. If I had known this earlier, I would have been more cautious about the guarantee decision,” said Ms. Zhou.

21st Century Business Herald’s investigation found that loan agreements signed by borrowers often include a clause stating, “In case of default, the bank has the right to deduct the owed amount from all accounts opened by the borrower at the bank.” This has once again raised social concern over the boundaries of banks’ deduction rights and the protection of financial consumer rights, especially regarding overdue debts and pension accounts.

Industry experts interviewed by 21st Century Business Herald stated that overdue situations generally fall into two categories: one is direct lending between the borrower and the bank; the other involves debts arising from guarantees or third-party borrowing.

For personal overdue loans, according to the contract, banks do have the right to seize funds from other accounts of the borrower. However, when signing the contract, banks should fulfill the obligation to inform the borrower of this clause, and during actual deductions, notification procedures should be followed. For debts arising from guarantees or third-party borrowing, banks must go through court procedures and obtain a valid legal document before applying enforcement; they cannot deduct funds independently.

Experts also emphasized that regardless of the situation, pension funds differ from ordinary deposits. They serve as a basic social security function and should, in principle, reserve essential living expenses for retirees to protect their basic rights.

Can overdue loans lead to deductions from other accounts?

Regarding reports of funds being deducted from other accounts to repay debts, 21st Century Business Herald consulted multiple industry insiders and experts.

An employee from a personal loan department told the newspaper that loan agreements typically include a clause stating, “In case of default, the bank has the right to deduct the owed amount from all accounts opened by the borrower at the bank.”

He showed a typical wording: “In case of default, the lender has the right to deduct from all foreign currency and local currency accounts opened by the borrower at this bank (including branches) the corresponding amounts to settle the principal, interest, penalty interest, liquidated damages, 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. The bank’s operations are based on this contractual basis.”

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 other involves debts from guarantees or third-party platforms.

Lawyer Yu Qing from Beijing Shengchi Law Firm explained that for overdue personal loans, the bank indeed has the right to seize funds from other accounts of the borrower based on the contract. However, he emphasized that when signing the contract, the bank should fulfill the obligation to inform the borrower of this clause, and notification procedures should be followed during actual deductions.

“Most loan contracts are standard forms, and clauses related to deduction rights are significant terms affecting the borrower’s interests. According to law, the party providing standard clauses must reasonably notify the other party and explain the terms as required,” Yu Qing said.

Some borrowers told 21st Century Business Herald that during signing, staff mainly explained the loan amount, interest rate, and repayment period, but did not mention the deduction rights clause. “There was so much content in the contract, I didn’t pay attention to that clause when signing.”

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

In cases of debts from guarantees or third-party borrowing, such as consumer finance platforms, Wang Hongying, a master’s supervisor at Peking University, pointed out that banks must go through court procedures and obtain a legal judgment before deducting funds from the borrower or guarantor’s accounts; they cannot deduct funds independently.

In fact, courts have previously ruled on similar cases.

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

Mr. Sun 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 agreement 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.

Can pension funds be deducted or frozen? Experts: Basic living expenses must be reserved

Compared to deductions from ordinary bank accounts, cases where retirees’ pension accounts are fully deducted or frozen attract more attention, raising legal boundary and rights protection issues.

Mr. Wu, who had his pension deducted for debt repayment, told 21st Century Business Herald, “I did sign the loan agreement, but now I am retired and rely on my pension for living. The bank didn’t notify me, nor did I see any court judgment, yet all my pension was taken. This makes me question the bank’s procedures.” His experience is not isolated; many interviewees said that pension is their main income in old age, and full deduction would threaten their basic living rights.

In cases where there is a loan agreement, can pension funds be deducted or frozen? How much can be deducted? 21st Century Business Herald consulted multiple experts.

Lawyer Ye Miao of Shanghai Dehe Hantong Law Firm pointed out that pension funds are basic social security funds and are legally protected. 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 court perspectives that, according to the Civil Procedure Law and relevant judicial interpretations, especially the Supreme People’s Court’s 2014 reply regarding issues in Zhejiang Province, pension benefits are considered fixed income from third parties and are part of the debtor’s property. Courts have the authority to freeze or deduct these funds, but before doing so, they must reserve necessary living expenses for the debtor and their dependents.

Regarding how to determine the reserved amount, Wang Hongying said, “The reserved expenses should refer to the local minimum living standard, combined with the retiree’s health condition, ensuring necessary monthly medical expenses for conditions like hypertension and diabetes. 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.”

In judicial practice, courts have issued rulings on enforcement involving pension accounts. For example, Liu, a retired employee, was granted a court judgment after providing a guarantee for a 3.9 million yuan loan. When the loan defaulted, the bank applied for enforcement and froze Liu’s pension account in June 2024.

Liu filed an objection, claiming the account was his only source of income and his family was in hardship, requesting the court to stop enforcement. The court found that although the pension account was frozen, necessary living expenses were reserved, and only the remaining balance was frozen or deducted, complying with legal requirements. The objection was dismissed.

This shows that courts generally adopt a “reserve living expenses before executing the remaining balance” approach. Yu Qing reminded that if banks do not reserve necessary living expenses during deduction, borrowers can file a lawsuit to recover the excess funds.