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Darby Direct Ending the Add-On Deposit Feature of Its Existing 36-Month Step-Up CDs

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Darby Direct

Yesterday afternoon readers reported receiving an email from Darby Direct informing them that they would no longer be able to make additional deposits to their 36-month Step Up CD after February 28, 2010. Here's an excerpt from the email:

As a valued customer, we would like to inform you about changes to your Darby Direct 36 Month Step Up CD. The last day to make additional deposits to your 36 Month Step Up CD is Sunday, February 28th. Following this date, no additional deposits can be made. For account disclosure information, please click here.

This brings up an important issue with CDs. Can a bank unilaterally change the account disclosure during the term of a CD? This appears to be what happened at Darby Direct. If you refer to the new account disclosure from the link above, it states the following:

[X] You may only make deposits into your account___until February 28, 2010

However, a reader made a copy of the original disclosure when he opened the CD in 2009, and this line was checked "You may only make unlimited deposits into your account" but the rest of the line was blank. There was no "until February 28, 2010". Also, there was an additional line that appeared as follows: "[X] You may make unlimited deposits into your account."

This is not only an important issue for those with this Darby Direct CD, it's also an important issue for anyone with a CD. There are many other important provisions in a CD account disclosure besides rates and maturity. Most CDs don't have add-on features, however, most allow early withdrawal with a penalty. Can a bank refuse to allow an early withdrawal even if there's no mention of that refusal right in the account disclosure? Can a bank increase the early withdrawal penalty? With the risk of interest rates shooting up in the next few years, this is a major concern for all those considering long-term CDs.

I do not know the laws for these issues and what the legal recourse might be. I found some relevant but general information from the OCC site helpwithmybank.gov. One of the Q&As of the site mentioned CD account disclosures:

Interest rates have gone up, but the bank refuses to raise the rate on my time certificate of deposit (CD). Why?

When you buy a CD, you enter into a contract involving a fixed amount of money (principal) for a predetermined period of time (the term) and an agreed-upon interest rate and yield. The bank is simply honoring the terms of the contract; it is not obligated to change those terms when interest rates change.

Please refer to the Account Agreement you received when you bought the CD for the terms and conditions of the account.

It appears the OCC is implying that the CD account disclosure is a contract which must be honored by both the bank and the account holder. It's important to note that the OCC is not the primary regulator for Darby Bank. According to the FDIC, Darby's primary federal regulator is the FDIC.

Another issue with Darby Bank is that it's not in the best financial health. It has been operating under this FDIC Consent Order (pdf) since December 18, 2009. In the order there are restrictions to brokered deposits and deposit yields. The order also has names of Georgia and FDIC regulators who may be another point of contact if Darby refuses to honor the original account disclosure.

There have been past cases in which banks and credit unions have changed their additional-deposit policies during a term of a CD. I don't know if the CD holders had any success in forcing the institutions to honor the original account disclosures. Last year a commenter mentioned that Vineyard Bank reneged on the add-on provisions of certain of its CDs. The bank was in bad financial shape, and it was seized by regulators. Another example was at United Services Credit Union in 2006. Readers reported that the credit union reneged on the terms of its flex CD.

Update 2/25/10: The reader BestCashCow reported the following in the Open Discussions Thread:

Regarding Darby - I have spoken to the FDIC about this type of issue. According to the FDIC, Darby can't change the terms of the initial disclosure unless they specify in the disclosure that it is subject to change. They also need to state that near the term they plan to change. So, they can't say the CD allows unlimited deposits on page 2 and then say this is subject to change on page 5. I don't see that anywhere in the amended agreement. I don't have the initial PDF but if there is no "subject to change" language then Darby shouldn't have altered the agreement. I'd contact the FDIC. the Fed or your local banking commission.
  Tags: CD rates, Darby Direct, Georgia

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Comments
29 comments.
Comment #1 by Dave (anonymous) posted on
Dave
Thanks for bringing this up BankDealsGuy based upon the open discussion thread posts.

 

I will update if anything positive comes out of this. There are at least a few avid readers of this site who have the Darby 36 Mo Step Up CD that will be highly annoyed by Darby Bank's reneging of the contract.  

4
Comment #3 by Atlanta Wolf (anonymous) posted on
Atlanta Wolf
Per the FDIC Bank Find database 

http://www2.fdic.gov/idasp/main_bankfind.asp

Darby Bank & Trust Co. is chartered as a Federal Reserve Non-member. Therefore the primary regulator is the Federal Deposit Insurance Corporation (FDIC). For consumer assistance regarding an issue with this institution, please contact the FDIC directly using https://www2.fdic.gov/starsmail/index.asp.

I'm extremely curious what the legal interpretation of this is.

5
Comment #4 by Richard (anonymous) posted on
Richard
It seems to me that a contract is a contract.  It must be honored by both parties or broken only by mutual agreement.  If Darby Bank succeeds in changing the CD terms after the CD was established, what will prevent other financial institutions from doing the same?

I am interested in the legal ramifications concerning this move.  Whoever has a Darby CD and wants to add more money to it after March 1st, please let us know how Darby responded.

5
Comment #5 by Anonymous posted on
Anonymous
I talked to Ally and ask those questions.

I was told that if they changed the penalty (now 60 days) they would give me the option of bailing out but that they could refuse early withdrawal which they have never done before but may do if rates become as high as some expect them to be.

2
Comment #6 by me1004 posted on
me1004
Banking Guy,

You might be able to find a lawyer who can write a guest piece on this. Or, the FDIC itself might provide such.

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Comment #7 by Anonymous posted on
Anonymous
It may not be a bad idea to contact the FDIC about this. I might do so myself. The FDIC has an 800 number for customer complaints against banks. You can be sure that if a customer wanted to, for instance, close before maturity and tried to get out of any penalty, the bank sure wouldn't let them get out of the contract. However I wonder if Darby is even long for this world, with their bank scores, and the latest action against them. I have this Darby CD myself, and wonder if the bank will survive through to August (when they're supposed to raise the interest rate) -- unless of course, they want to try to get out of that one too.

 

3
Comment #8 by AtlantaWolf posted on
AtlantaWolf
HHmmm maybe we could also change the terms (say 12% apy) and just send them an email to inform them of the changes?

If nobody else volunteers, I'll try and add-on another $500 on March 2nd I'll post my results. I think I share the majority view here thinking the CD was a contract and can only be changed by mutual agreement.

But to be honest, a step up CD paying above average rates, 'unlimited' add-ons, and even a early withdrawal option seemed too good to be true.

Do we have any FDIC/Georgia Department of Banking and Finance folks among the readers here?

2
Comment #9 by Anonymous posted on
Anonymous
The FDIC's Consumer Complaint line (for banks), answered by a live person during normal business hours: (800) 378-9581.

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Comment #10 by Anonymous posted on
Anonymous
Just to be clear: that telephone number in the previous post I just wrote (800-378-9581 for the FDIC) is for consumers to call if they have complaints about a bank (it's specifically for consumers that have questions, complaints or concerns about an FDIC-governed bank).

Another thing worth noting is that Darby gave only 6 business days' notice (the 19th, as even though they state Feb 28th as a cutoff, that's a Sunday, so there was only 6 business days' notice). And note that if you're doing an ACH, it usually takes 1-3 business days for the receiving bank to receive it, and many banks and credit unions have a low daily limit as to how much you can send via ACH.

But heck, I agree. I'll stipulate to the "no more addons" change if Darby will accept my "12% interest" change request...

 

2
Comment #11 by AtlantaWolf posted on
AtlantaWolf
Darby's transfer system requires 4 business days to transfer funds. At 4:05 ET I setup a transfer and it showed the arrival date as 3/1/2010, and it let me submit it. It confirmed the transfer. Perhaps they meant you must initiate the transfer before 2/28/2010?

I called Darby and talked to Megan, and she repeated that 2/28/2010 was the "last day to add to the CD". She said you can use their transfer system to ach-pull funds in (subject to 10k/day, 25/mo limit), transfer from Darby's savings, bank wire, or ACH into it. I did not know you could ACH *in*. She said customers have been successful with ACH in.

I called the FDIC Customer Complaint line, and talked to a live person after about 20 seconds. She was friendly and helpful, but said flatly I needed to discuss this with Darby first before she could assist. She wouldn't answer the hypothetical 'can they change the account disclosure?'.

I'm opting for Bank Wire which costs $20 for my other bank to send, free for Darby to receive. Bank wire details on their site: https://www.darby-direct.com/source%20docs/transferaccount.pdf

 

 

 

 

 

2
Comment #12 by maxpower posted on
maxpower
does anyone have the original terms? if so, pls contact me at pulsar at dr dot com. I have not found much coverage on this issue despite google and wonder what the BBB and/or the FDIC can do about this.  There is no negotiation bc the manager/supervisor at darby was "unavailable" all day today. I'm not even sure if this is a contract law issue bc I'm not sure that a contract was ever signed...perhaps similar to how credit card companies change their APR at the drop of a hat bc they make their clients agree to arbitration before becoming the credit card member.

bc it takes so long to make a transfer to add to the acct and bc darby has its own cap on how much can be added over a day or month, their new "update" effectively stops ALL additions within 1-2 business days following its announcement. i wonder what will become of funds that arrive over the weekend.

3
Comment #13 by Brad (anonymous) posted on
Brad
Something else they changed before, but didn't even sent out an E-mail on:

They stopped accepting deposits on their 18 month breakable CD after December 31, 2009.  I really don't believe they ever notified us of this.  I was hoping that at least if the 36 month stopped accepting new money, the 18 month would still be an option for other money that will become available for me this year.

At least we have notice on the 36 month, but you had to act fast with how slow Darby does transfers.

2
Comment #14 by Brad (anonymous) posted on
Brad
Something else they did not publicize:

The rate on the Money Market has been cut from 1.25% to 1.05%.  It is very diffcult to see this.  I noticed it in the "details" tab for my account when logged into Darby, the other place to see it is on Page 9 of a 10 page account disclosure.  The rate is NOT in big type on the intro page as it had usually been.  They seem to not want anyone to find this out easily.

However, with no minimum balance required, any of us who were smart would have moved most everything into the 36 month CD while we could.

here is hoping they don't take away the scheduled rate hikes to 4% and 5% or cancel the penalty free withdrawl window on Year 1 and Year 2 anniversary of the CD.

2
Comment #15 by AtlantaWolf posted on
AtlantaWolf
My request last week to move money with an arrival date of 3/1/2010 made it into my CD successfully today. I submitted a new request today more $500 MORE into my account with an arrival of 3/8/2010, and the system accepted my request.

So they're not going to *really* block add-ons to the CD?

3
Comment #16 by Dave (anonymous) posted on
Dave
I second that .. transfers scheduled on 3/1 seem to have been accepted. Right around 9:00AM the transfer went through, and debits from the savings account and credits to the CD were shown.

 

Either they forgot to turn this off, they had a change of heart and reversed the decision to revoke the xfer privileges, or (worst of all) they will somehow undo the transfers.

3
Comment #17 by Anonymous posted on
Anonymous
There are probably more banks operating under some type of order in these times than in any other financial crises.  Darby Bank is no different than any other Bank in the United States, especially the Southeast, probably in better shape with just getting a Consent order and not a C&D.  Plus the FDIC has not closed them so the FDIC has a level of confidence in the Bank.   

1
Comment #18 by Anonymous posted on
Anonymous
I don't understand what ATLANTAWOLF wrote. Did you mean Megan at Darby said you could continue to add (after the stop date) to the CD if you use ACH? Or just that you can use ACH until the cutoff date?

I see that some people have been successful with their ACH transfers going through shortly after the announced deadline, but that might be until they have a chance to change the software and such, and I just wanted to understand better what ATLANTAWOLF meant from his post (if Darby's rep said you could continue adding if you use ACH, or just that you can use ACH to add -- but only until the deadline).

Thanks

 

1
Comment #19 by Anonymous posted on
Anonymous
Though slightly offtopic, I was wondering what the FDIC's rules were when a bank gets taken over. Do they give out the interest earned to date as well as the principal, or just the principal?

Because for instance, while these 36mo Darby CD accrue interest daily, that interest isn't actually POSTED until annually. So say your principal was $1000, and you look at your Darby information online and it says you have $50 of interest for that period. That $50 (even though the interest is accruing daily) won't actually be POSTED until annually -- a year after you open the CD. So if Darby or another similar bank were to go under before the interest was posted, would you still get the $1050 from the FDIC or just the $1000?

 

0
Comment #20 by Dave (anonymous) posted on
Dave
Re: comment 19, yes FDIC covers accrued interest, whether posted or not.

You can view accrued interest on details section of the accounts tab anyway. It is updated daily.

 

Re: comment 18, it seems the internal transfer restrictions (can't add more money to CD's) that they SAID would take effect Feb 28 still haven't been put into place. I will try another internal transfer (not ACH) from savings acct to CD Friday and hopefully it will still work depite what Darby said.

1
Comment #21 by Dave (anonymous) posted on
Dave
Internal transfers from the Darby savings account to the 36moStepUp CD are still being processed as of Mar 19 2010.

1
Comment #22 by AtlantaWolf posted on
AtlantaWolf
Sorry about the confusion. Darby said they wouldn't accept add-ons after the deadline, and they gave me a list of ways to add to the CD.

But the deadline came and went, and as it turns out, they didn't even disable their own internal transfer system, so it's still possible to add money to your CD just as before.

My guess is the email was just to discourage further additions and hope only a few individuals would pursue the matter.

1
Comment #23 by AtlantaWolf posted on
AtlantaWolf
Today's email announcement.

Dear Darby Direct Customer:

Please disregard the email message sent to you on February 19, 2010 regarding limitations on deposits to your Darby Direct 36 Month Step-Up CD. There are no changes to the original terms of your account at this time, and you may still make additional deposits to the 36 Month Step-Up CD. For full account disclosure information, please click here. ( https://www.darby-direct.com/disclosures.html )

Our customers are our most valuable asset and your concerns are our highest priority. Please contact us with any questions regarding your account, and thank you for choosing Darby-Direct! 

1
Comment #24 by Anonymous posted on
Anonymous
Just received the following e-mail from Darby Direct:

Dear Darby Direct Customer:


Please disregard the email message sent to you on February 19, 2010 regarding limitations on deposits to your Darby Direct 36 Month Step-Up CD. There are no changes to the original terms of your account at this time, and you may still make additional deposits to the 36 Month Step-Up CD. For full account disclosure information, please click here.

Our customers are our most valuable asset and your concerns are our highest priority. Please contact us with any questions regarding your account, and thank you for choosing Darby-Direct!

1
Comment #25 by Dave (anonymous) posted on
Dave
Yup, and they changed the account disclosure for the 36-mo CD back to what it used to be:

https://www.darby-direct.com/disclosures.html

 

Note the "until February 28, 2010" clause on the bottom of page two has been deleted. It now says just "You may only make deposits into your account"

 

I suppose Darby got cold feet on reneging on the original contact terms and changed it back.

1
Comment #26 by Anonymous posted on
Anonymous
Actually, I wrote to the FDIC to complain specifically about Darby's action regarding this CD, and it looks like it got some results. As a Darby customer myself, I have nothing against Darby or other community banks. I want them to succeed (iffy as that may be at this point). But a bank (any bank) cannot simply decide to change terms previously agreed upon midstream simply because they want to. You can bet that if *I* wanted to change the terms of the CD to allow everyone to close out their CDs at any time without a withdrawl penalty, what do you think the bank's reaction to that would be? You think they'd say "sure, no problem, we'll just ignore the terms and let anyone close it out tomorrow with no early termination penalty"?

I like Darby Bank and am a customer of theirs. I have no desire to see them go under. I understand times are tough for them right now and things aren't looking good. But you've got to honor the terms you agreed upon, or frankly, you aren't worth saving. A bank cannot just cannot change agreed-upon terms midstream because they feel like it. I'm glad Darby decided to change their mind, and hope that they can somehow get through the tough times and survive.

That said, I should probably mention some disturbing news I was told by the FDIC staff in Atlanta. The lady in charge of my case could not comment specifically on my case verbally (as they do everything in writing) but did mention that generally there may be many instances where a bank does an action, and even if they're doing wrong, there will be no recourse for the individual, even if the bank is found to be at fault. When I asked why, she told me the FDIC isn't an enforcement agency (huh?) and that if a bank decides to flaunt the rules, or even just ingore FIDC requests for information on a complaint, there often may be no recourse for a customer/consumer. When I asked her "well what if Bank X even refuses to get back to the FDIC when you ask them about an issue?" and her reply was that if the FDIC felt it was egregious enough they could of course kick the bank out of the FDIC (meaning the bank would most likely go under) but that they can't force the bank to do something and often there are instances where there's recourse for the consumer. Hearing that didn't instill me with a lot of faith in the FDIC. It didn't seem to make a lot of sense (as there are FDIC actions taken against banks constantly) but that's what I was told verbally (again in "general" as she hadn't yet received a reply from Darby, so wasn't commenting on this case in particular).

Just for the record, the way it works when you contact the FDIC about a bank is... the FDIC simply forwards the exact letter you wrote to the FDIC (along with any documents you sent) onto the bank in question itself, and simply asks the bank for a reply. So keep in mind that any letter you send to the FDIC about a bank will be forwarded to the bank itself. Then you're supposed to give them 60 calendar days for a reply. I haven't received anything back from the FDIC about Darby yet, but it hasn't been 60 days yet, and it seems from this news that the issue has been settled.

Ironically (as I wrote in the letter) when I called Darby and asked to speak to someone else about their change back when it was announced, I was transferred to a lady who was quite friendly and cordial, and said she'd be willing to make an exception for me and let me do transfers if it was just a couple times a year (but insisted that across-the-board they were able to change the terms). I appriciated that, but it didn't change the fact that a bank cannot just change the agreed-upon terms to suit them whenever they like, which is why I followed up on this with the FDIC.

I hope Darby will be able to survive these tough times, but if they can't, it won't be because of this issue. Hopefully we'll all be around for a while...

 

1
Comment #27 by Anonymous posted on
Anonymous
Just a typo in the above post. I meant to say:

....but that they can't force the bank to do something and often there are instances where there's NO recourse for the consumer.

1
Comment #28 by Anonymous posted on
Anonymous
I also wrote the FDIC using the complaint form on their website.  Actually, I called the FDIC first who told me that the bank couldn't do that (change CD terms) unless they were ordered to do that by the govt/FDIC.  Anyway, the lady told me she didn't have access to that type of information and that I would need to file a formal, written complaint .  I was actually somewhat surprised to get that email today.  I had figured I'd never hear anything again and Darby would do whatever they felt like.

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Comment #29 by Dave (anonymous) posted on
Dave
Good posts above.

 

Note that they worded the email as " There are no changes to the original terms of your account at this time, and you may still make additional deposits to the 36 Month Step-Up CD."

 

Still, given Darby's extremely poor financial situation (0 stars on many of the bank rating sites I checked), I would not be surprised if this bank goes under sometime in 2010.

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