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Ken Tumin founded the Bank Deals Blog in 2005 and has been passionately covering the best deposit deals ever since. He is frequently referenced by The New York Times, The Wall Street Journal, and other publications as a top expert, but he is first and foremost a fellow deal seeker and member of the wonderful community of savers that frequents DepositAccounts.

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Bank Breaks CD Terms by Closing CDs Before Maturity

POSTED ON BY

Main Street Bank

One of the concerns with long-term CDs is that the bank won't honor the terms of the CD. An important term is the right for an early withdrawal with a penalty specified in the disclosure when the CD was opened. The fear is that if rates shoot up in the next few years, banks will take steps to prevent early withdrawals by increasing the penalties or by just refusing the withdrawal requests.

Another important term is the maturity date. Unless the CD is callable, you expect that the CD will earn the specified interest rate until the maturity date as specified when the CD was opened. The only exception has been when a bank fails. By law the acquiring bank may decide to close the CD early. It looks like that's not the only exception. There has been a recent case in which a bank broke this contractual agreement. This is described in this blog post at Jumbo CD Investments.

Main Street Bank in Kingwood, TX used a clause in their disclosure to allow the early closures of the CDs. They claimed that they are being required by a consent order with the FDIC and Texas regulators to meet certain capital requirements, and this is the reason for the early CD closures. Here's the clause from the bank's disclosure:

Amendments and Termination - From time to time we may amend any term of this agreement upon giving you reasonable notice in writing or by any other method permitted by law, including, in appropriate circumstances, posting notice in our building. We may also close this account at any time upon reasonable notice to you and tender of the account balance personally or by mail. Notice from us to any one of you is notice to all of you.

We've seen some other banks include a similar clause in their disclosures which essentially turns the CDs into callable CDs, but this is the first time I've seen a bank make use of this clause to actually close the CDs early.

My contact at Jumbo CD Investments said they tried to work with the bank's CFO to see if the bank would at least honor some of the remaining interest they owed to the depositors. They suggested that the bank at least pay the depositors the difference in cost of what they expected to be earning and what rates they can currently receive now. The bank decided against this and is only paying interest up to January 3, 2011.

Not only did the bank decide to close the CDs, they did so on Christmas Eve. They sent out the letters on December 24th, and at the same time they returned the funds via wire transfer without any other warning. This appears to be a clear violation of Regulation DD:

§ 230.5 Subsequent disclosures.

(a) Change in terms--(1) Advance notice required. A depository institution shall give advance notice to affected consumers of any change in a term required to be disclosed under § 230.4(b) of this part if the change may reduce the annual percentage yield or adversely affect the consumer. The notice shall include the effective date of the change. The notice shall be mailed or delivered at least 30 calendar days before the effective date of the change.

Another disturbing issue of this is that the staff at Jumbo CD Investments isn't getting any help from the FDIC. Here's an excerpt from their blog post:

And shame on the FDIC for not doing their duty (and believe me this isn’t the first time) to protect depositors from unscrupulous banks that hide behind small print.

This case strengthens the concerns of many readers who fear these blanket clauses in the CD disclosures could be used by banks and credit unions to the detriment of the CD account holders. This concern was described in my blog post on the risks and benefits of long-term CDs and in this forum thread on Fort Knox FCU's early withdrawal penalty.

One interesting thing to note about Main Street Bank is that they appear financially healthy. I was disappointed to see that we gave Main Street Bank an overall health score of 4 out of 5 with a Texas Ratio of 5.01% based on September 2010 data. However, we're not alone. Bankrate.com gave them the top rating of 5 out of 5 stars. BauerFinancial won at the ratings in this case. They gave the bank a 2 out of 5 star rating. Calculated Risk Blog's unofficial problem bank list did list Main Street and their July 2010 FDIC consent order. I'm sure most of the CDs were opened before July, so this shows that even if a bank appears financially healthy, it doesn't mean you won't have to worry about the bank doing what Main Street Bank did.

In my opinion the regulations and the regulators are inadequate in the protection of depositors. There have been a lot of new regulations this year to protect borrowers, but nothing for savers. There needs to be regulations that ensure that banks can't use overly broad disclosure clauses to make major changes to CDs to the detriment of the CD account holders. It's bad enough that savers are having to live with these record low interest rates. We shouldn't have to worry about banks cheating us on our CDs.


  Tags: Main Street Bank

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Comments
40 Comments.
Comment #1 by Anonymous posted on
Anonymous
Game changer.

6
Comment #2 by me1004 posted on
me1004
Interesting. And if they can just close it like that, then they also could do the other things previously discussed, like change the early closure penalty -- and maybe change it substantially.

I note, in the article headline, you said the "Bank Breaks CD Terms..." Actually, with that clause in there, that was the CD terms. So, they did not technically break the terms. Yet, that clause did not get it classified as a callable CD -- and I don't see why not. 

My impression at this point is that pretty much ALL CDs have some such similar clause, although they may be more obfiscating than this one. This one at least actually specifically mentions closing the CD. I haven't seen all the banks' terms, but I haven't seen any that do not have such clauses, as obscure are they might be written.

I do not see how they bypassed the Reg D requirement for a 30-day notice, initiating the action of Dec. 24, and it being effective Jan. 3 or earlier. But you reference a "consent order." If that is a court order, that might be able to override the Reg D notice requirement. If merely an FDIC order, the FDIC might have other authority to make for less notice; the Reg D requirement you quote is on the financial institutions, not on the FDIC itself. That might provide a way around Reg D requirements.

Bottom line: anyone getting into longterm CDs as a tactic to get higher interest rates, with the idea they can close early, pay the early closure penalty and still end up with more interest than they would have gotten in a shorter term CD, better approach that tactic with caution and consideration of whether they will be able to suffer any loss if some such action as this happens. At least with this closure, the account holders will not have to pay the early closure penalty so should not lose to date, although with whatever lower rate they now get on that money, they might end up with less than they would have with shorter term CDs at the time they started this CD. But if instead of closure the early withdrawal penalty is substantially increased, that could very well completely undermine your strategy, leaving you facing an immediate loss over what you otherwise might have gotten in a shorter term CD or facing an outright loss of principal. Or, maybe the bank simply will not allow the early closure -- and if you need the money, you could be in big trouble. I think you would be unwise to use that tactic if you will not be able to go the full length of the CD in the event its terms change for the worse.

Re the comments about the FDIC doing nothing to help the depositors: unfortunately, it seems none of the regulators are doing that part of their jobs. For the past seven months, I have been dealing with the Comptroller of the Currency in a dispute with Citibank, and the regulator has done NOTHING useful or, in my opinion, even honest in addressing the issue. They require me to file all the details, and then they send that to the bank. The bank then takes months and months to bother to respond, and when it does, it is just a completely professional, in my opinion lying whitewash claiming innocence and falsely blaming me, and leaving out key details that would hurt them. The Comptroller of the Currency takes that letter and uses it to immediately close the case, and later notifying me of such! The bank said they are innocent, so  they are innocent. They do not even question the bank. They do not even consider anything in the response that might be completely unbelievable. I have refiled twice so far, to no avail. They say I can provide proof. The only proof would be the tapes of phone calls with Citibank -- but the Comptroller refuses to ask for them, despite me calling on them to do so in every contact -- and by now they certainly have been destroyed. 

And I have heard similar comments from others trying to get the regulators to do their jobs. So, don't expect any help -- the regulators are acting as the protectors and agents of the banks. We are on our own.

18
Comment #3 by eric2 posted on
eric2
This should at least give pause to those who ask us to uphold the "spirit" and "honor" of the bank relationship. Clearly the banks only go by what is written in their documents, so we should do no more.

8
Comment #4 by Anonymous posted on
Anonymous
If anyone is angry (and as petty as this bank is) you could find a payphone, and simply call their 800 number (1-877-847-6246) numerous times, hanging up as soon as they answer. If you do so from a home phone, it only costs them about a penny (and your number will be shown on their system even if your number is blocked), but if you do it from a payphone, FCC rules require the payphone owner to charge the toll-free number's owner (in this case, Main Street bank) at LEAST 24c per call. So everytime you call United Airlines or Citibank or whoever, if that 800/888/877/866 call is from a payphone, they have to pay a 24c fee on top of the couple pennies it costs them for the call. Hanging up immediately after they answer with their voice mail "Hello, thank you for calling..." makes them have to pay for it. From a payphone (if you can find one, they're getting harder to find), dialing fast, immediately hanging up and calling back, you could easily cost them $15 in phone charges for 15 minutes of doing that from a payphone. I'm not telling anyone to do it, of course. Just pointing out how toll-free numbers work.

About the FDIC: I agree they're totally impotent and don't want to do anything to help the consumer. I've seen discussion here about a couple of other banks that disregarded rules (different ones) and didn't suffer anything for doing so.

9
Comment #5 by Bozo (anonymous) posted on
Bozo
The root of the word "credit" is "credo"  (trust), and it is trust upon which our financial system is based. You give a bank money, you expect to get it back. The bank loans you money, it expects to get it back. Regrettably, this concept of trust has been shaken, and we are the worse for it. The concept of trust is why foreign money still flies into Treasury notes and bonds whenever weird things happen. We may be odd at times, but Americans by and large pay their debts, unlike banana republics. It is sad to see financial institutions gaming CDs, but I guess I should not be surprised. I posted in another thread how futile it is to contest "banks gone wild". Bottom line: there's not enough on a case-by-case basis for a lawyer to take the case, regulators are overworked, and most institutions figure (with good reason) you'll eventually give up.

Lesson: put your money where your mouth is, or might at least be heard (as on this blog). If enough folks learn about a bank scamming, it might have the intended consequence,

Bozo

8
Comment #6 by Anonymous posted on
Anonymous
Everyone should urge all their friends to write their Congressman and Senators and urge them to pass a law prohibiting term CDs from be called early unless they are clearly labeled "Callable Certificate of Desposit" and prominently display the call terms in advertisements and terms and conditions.  This needs to be attacked immediately.

14
Comment #7 by Inforay posted on
Inforay
One more thing we have to be wary of.  I thought I knew all of their tricks.  If anyone is aware of any other banks or credit unions that have this type of clause, could you please keep us apprised.  This is outrageous!  Such a CD should be designated as a "Callable CD" and not a fixed-tern CD.

9
Comment #8 by Anonymous posted on
Anonymous
This may explain why treasury securities are still finding buyers.

7
Comment #9 by dave9354 posted on
dave9354
I have emailed this bank a nasty letter and I urge all to do the same!! There is strength in numbers!!

Let these bums know you cannot **** the customers!!

9
Comment #10 by Anonymous posted on
Anonymous
In all fairness (ideal world), if you have to pay a penalty to break the cd early, the bank should pay you when they break the deal. 

15
Comment #11 by Anonymous posted on
Anonymous
Has anybody determined if any of the more "popular" CDs mentioned in this blog (Penfed, Ally, etc) have a clause like this?  I think that this would be important most especially with deals like Penfed's 5% 10 year CDs starting in January (that took reservations from people that didn't qualify for the promotion).

5
Comment #12 by ChrisCD posted on
ChrisCD
I have a copy of the Pentagon Disclosures from a CD App in 2007.  Does anyone have a more recent one?  At least in this one there is no mention of not allowing for early clcosure nor the general clause that caused the problems above.  An interesting item of note though is this:

m. Notice of Withdrawal. Pentagon Federal
reserves the right to require a written notice of
up to 60 days of the intention to withdraw funds
pertaining to this certificate. Such a
requirement, if imposed, may not extend the life
of the certificate beyond the established
maturity date.


cd :O)

2
Comment #13 by Anonymous posted on
Anonymous
As others have already mentioned, the real fact is that the CD terms were not transparent enough to specify that it was actually a Callable CD. If the FDIC will not help with this scheme, maybe a boycott is in line for this bank.  If every depositor withdrew their money and closed their accounts at this bank, the FDIC may get more interested in doing something about it. 

5
Comment #15 by pearlbrown posted on
pearlbrown
#13, you are correct that the real issue is that the CD terms were not transparent enough. 

As Ken says in the post, "regulations and the regulators are inadequate in the protection of depositors. There have been a lot of new regulations this year to protect borrowers, but nothing for savers".  Borrowers got everyone's attention when they couldn't meet obligations and then the economy started to deteriorate.  I don't anticipate the FDIC getting more actively involved with protecting savers' interests until they absolutely need to. 

The lesson here is that we all need to be responsible for being our own best advocates at all times, especially when it comes to financial transactions.  Financial institutions certainly know how to do this.

It's in our own best interests to be diligent about reading and extremely vigilant about making sure we understand all the terms in agreements in our lives, especially disclosure agreements relating to financial transactions.  The devil, as they say is in the details, or as more commonly stated, "The large print giveth and the fine print taketh away".    We will all continue to be presented with that lesson until we take it to heart.

Not to say that we might not still deposit the money into what amounts to a callable CD, but at least we do so with full awareness of the risks. 

3
Comment #14 by me1004 posted on
me1004
Re those asking if other institutions have similar clauses, as noted in my post above, and in the links in the story to previous forum discussion, various others do have such cartch-all clauses allowing for any changes to the CDs at all, whether calling them, changing the early withdrawal penalties, barring withdrawal, even changing the interest rates -- anything. In fact, I am afraid ALL banks have such clauses, buried deep in the fine print, and not necessarily in the section you might look at, and not in very clear language.

In those previous forums posts, we named a few banks we looked at, and they all had such clauses, including Ally, as specifically questioned above. And there have been some other posters over the past year who have complained about their banks doing such things. 

In previous forum posts, the danger of this was basically pooh poohed by some as something the banks would never do, that it was just lawyers putting in boilerplate that meant nothing to actual business practices. I knew that was wishful thinking. I argued that the CEOs know full well what is in the clauses and will use them as they please.

In fact, we are in a circumstance now that could bring these clauses into big play in the next couple-few years. A lot of people have been using the tactic of going into longterm CDs for the higher rate, with the idea of closing and absorbing a small early withdrawal penalty when interest rates rise and moving to a higher rate, leaving them with more interest accrued than they would have had otherwise. But when rates do rise -- and they will in the next couple of years, and presumably substantially -- and a lot of people start the end play of that tactic, trying to close their CDs, they should expect the banks to respond accordingly and exercise these catchall phrases. The banks are not going to sit by idly as they lose all their deposits and let themselves be run out of business! These are unique economic circumstances we are facing, now and going forward.

6
Comment #16 by pearlbrown posted on
pearlbrown
@me1004 #14, I agree with you.  I never use the "deposit it, earn a higher rate even with an early withdrawal penalty" strategy.  Anything that can be done on an exception basis (taking an early withdrawal) only at the pleasure of another ("reserves the right to require a written notice of up to 60 days of the intention to withdraw funds pertaining to this certificate") can never be a sure thing. 

3
Comment #17 by Anonymous posted on
Anonymous
I checked all my CD account disclosures at 4 different banks and credit unions.  All of them had clauses that allowed them to amend any provision of any account at any time upon giving notice "as required by law."  I believe the financial institution making amendments would be required to allow the depositor to close the account without penalty during the notice period.  It seems that the CD contract is not really a contract at all if one side can change it at will.

6
Comment #18 by Shannon posted on
Shannon
"It seems that the CD contract is not really a contract at all if one side can change it at will"

 

So true!

5
Comment #20 by Anonymous posted on
Anonymous
This is HUGE! Has anyone contacted Main Street Bank directly for comment/verification?

If a bank can close a CD based on a clause in the general disclosures of the bank, can in turn a depositor break a CD penalty-free when the bank changes the general disclosures?

2
Comment #22 by treasurer1 (anonymous) posted on
treasurer1
I forwarded credit union documents and my statements to the NCUA to prove my verbal/e-mail complaint. The complaint was forwarded to the credit union supervisory committee by NCUA. The response attempted to answer 2 of the 5 points of my complaint. They were evasive and did not address the main issues. I pointed out to the NCUA that the credit union answer was in effect, no answer. No response from the NCUA to the question of adequacy of credit union response.

 

It seems ot be a clerical checklist exercise; 1. Receive complaint.

2. Forward complaint to credit union 3. Did consumer and NCUA receive response from credit union?

End of process!!!

No item 4,  were issues resolved by the credit union letter?

 

35 years of doing major personal banking and 25 years of doing cash management for large corporate treasurer departments and I am appalled at the way the NCUA handled this! 

Why are we paying government employees to do this caliber of work?

6
Comment #23 by Anonymous posted on
Anonymous
As a retired lawyer I am not taking cases anymore.  However, I can tell you that anyone who takes this to small claims court for return of the interest lost to the end of the contractual term would probably win.  Interpreting a modification clause so broadly that it would allow them to unilaterally terminate the CD while holding the account holder to a severe penalty for early withdrawal would be against public policy.  Such clauses are normally interpreted to apply only to NONMATERIAL aspects of the contract, not something fundamental like the interest rate or term of the CD.  Most states also have provisions for triple damages and attorney's fee awards for cases, like this, involving unfair business practices. 

Anyone who is a victim of this bank should consult an attorney about his or her legal rights.  Because of the tiny size of these cases, it is unikely that you could interest a lawyer in this on an individual basis, but he can give you a lot of information on your rights, and, often, the first consultation is free.  Also, you could bring the case yourself, in small claims court in the Texas County in which the bank is located.  Or, you could contact a Texas lawyer, and offer yourself as a class representative.  This may be a decent class action, if there are enough victims, because it is really a fairly simple breach of contract case very suitable for handling in that manner.

12
Comment #24 by AnonymousSurprised (anonymous) posted on
AnonymousSurprised
Just had a look at my CD opened recently (from another bank). It's appalling what is in the fine print. Have a look:

"We may change any term of this agreement. Rules governing changes in interest rates have been provided. For other changes we will give you reasonable notice in writing or by any other method permitted by law. If any notice is necessary, you all agree that the notice will be sufficient if we mail it to the address listed on page one of this form. You must notify us of any change."

So this means, they can decide to change ANYTHING they want at ANY time -- and their idea of "reasonable notice" is NO notice, as long as they drop you a letter in the mail the day they decide to do whatever they want.

Can THIS be challenged? Because this is really no longer a guaranteed time deposit. After all, YOU cannot do anything to the account without getting penalized, but the BANK is saying they can do WHATEVER THEY WANT to your account. That's not an agreement. The bank hasn't pulled this out yet, but I'm just wondering, is this worth submitting an enquiry to the FDIC about? Not that they'd do anything...

5
Comment #25 by Rosedala (anonymous) posted on
Rosedala
Hello All...this is really distressing!  As soon as I read all these intelligent comments, I went to read the disclosure papers from Penfed but I must've lost them.  So I thought I'd call them Monday to request copies, but, if we all, directly or indirectly, call the attention of the institutions by requesting Disclosure copies, as in my case, and/or asking questions or complaining about this matter, I'm afraid it may give them a heads up on reaffirming their arbitrary actions?  I opened accounts with them in 2007... 

Now I'm afraid to contact them on this but will search their site or my e-statements to see if they are there...which I doubt.  Of course, I understand that regardless whether they have the offending clauses or not it's obvious they'll do what's best for themselves even if unfair to savers!  :)  Rosedala

1
Comment #27 by Bozo (anonymous) posted on
Bozo
To the Retired Texas Lawyer (Anon #23):

Sorry, Dude. I'm a retired lawyer, too, and I doubt any lawyer worth his or her hat or cattle would take a case based on "lost" interest. Do the math. Even assuming you had the max involved ($250K), and the bank ripped you off by, say 3%, you have to calculate the opportunity cost (i.e., I get ripped off, so I take the funds and plunk them elsewhere), then subtract filing fees and your contingency fee (duh), and the fact that neither Texas nor any other state would grant class action status, you see where this is leading. As I posted in another thread on this blog, banks do math quite well. The math means they can rip you off and get away with it.

Don't get me started on class action status, by the way. Trust me (I'm a lawyer), it won't work.

Bozo

4
Comment #29 by Anonymous posted on
Anonymous
I contacted them and they said this is a bunch of bull **** and that they are considering legal actions against the website spreading the rumor.

1
Comment #30 by Hanrod (anonymous) posted on
Hanrod
This is interesting, if not surprising, financial news for a new year! The best response to this may be for your site to post a BOLD FACE warning notice (the first one a moderate one) at the beginning of your pages, as to this BANK FRAUD; DECEPTIVE DISCLAIMER contract "nullification", that is apparently so prevalent in Bank CDs (and perhaps also other financial instruments) today. A general, non-directed, warning would also keep you out of legal defense posture. Your "warning" should also state that you are giving the banks and regulators an opportunity to correct these, self-serving and unilateral, "contracts of adhesion", OR that you will need to warn all potential depositors to boycott bank CDs. You should also attempt to get any of the other major and similar sites to do likewise, and maybe even jointly bring this to the attention of both Congress, and the regulators, simultaneously.

1
Comment #31 by Anonymous posted on
Anonymous
If the FDIC is not doing anything,  take them to small claims court.  as dumb as that might sound sue them for breach of contract and demand the ineterst they owe you.   as a side note to the person with the citibank issues, as a former employee of citi i seen first hand how they twist facts and "lose" recordings" so dont count on any being found.  Mostly its from the idiocy of their policies, not the folks involved,  they are pressured to close things out quickly as time on an existing case open raises flags.  if you open the same item 50 different times they dont care and its ignored

1
Comment #33 by Bozo (anonymous) posted on
Bozo
Bottom line: the best we can hope for (should we be so lucky as to have long-term CDs paying over 5%) is (a) the sucker bank doesn't go belly up; or (b) the bank really, truly, thinks a contract is a contract (in latin. it's "pacta sunt servanda", or, in English, contracts must be obeyed.

As one who has a "pacta" with KeyDirect with many years to run (at 5.75%), I can only hope my "pacta" will "servanda".

Happy Newish Year,

Bozo

2
Comment #34 by John Zekas (anonymous) posted on
John Zekas
The FDIC took over a AmTrust Diredt where we had an on-line account several years ago. We had given up dealing with the bank. but the account had a few dollars in it. The bank closed the account and kept the money as they went bankrupt. I contacted the FDIC and they responded telling us they had no responsibility since they weren't the regulator of the bank they had just taken over. Why did they take over the bank and not provide the advertised insurance? The whole system appears to be corrupt.

1
Comment #35 by John (anonymous) posted on
John
Playing devil's advocate...

If the bank is answering an FDIC order, this action is allowed. It is an account closure so the bank can remain healthy, not a change of terms forcing you to keep your money with them. Because it is an account closure as response to FDIC, it would not have to give 30 day notice. Because you got all your money back, you have no ground to stand on. FDIC will allow this all over the place in order to keep a bank healthy and not have to use taxpayer monies to take over the bank. You should expect to see more of this until this financial crisis is over.

2
Comment #37 by Anonymous posted on
Anonymous
I agree it is wrong for the bank to do this, but since the FDIC can close a bank and let the acquiring bank close the CD early, it might be possible that the FDIC can provide cover for a bank on the brink of failing to do the same.

1
Comment #38 by Anonymous posted on
Anonymous
Can people please stop talking about this? The whole thing is a hoax and it is not true. Main Street Bank didn't call any CDs. This blog post is costing this site a lot of credibility.

1
Comment #39 by ChrisCD posted on
ChrisCD
For the doubters.  Here is a link to the letter that was sent.  Link to letter

To be clear it was 14 accounts that were closed, totaling about $1.4MM in principal and $32K of lost interest.  And based on the letter, if the bank gets away with this round, they may attempt round two sometime before March 31.

It is not Ken's (depositaccounts.com) integrity that is in question here.  It is Main Street Bank's (of Kingwood, TX).



cd :O)

6
Comment #40 by ChrisCD posted on
ChrisCD
Sorry.  Just after I posted, I was corrected.  It is 14 accounts that we are personally aware of.  Another company also had accounts there.  So at least 14 accounts are affected.

4
Comment #41 by Alskar posted on
Alskar
From the language used in the the letter it appears that the accounts in question were brokered deposits.  Is that correct?  If so, that changes everything for me.

Brokered deposits come under different FDIC rules.

2
Comment #42 by ChrisCD posted on
ChrisCD
They are brokered deposits.  I'm not sure what you would be referring to as to the FDIC having different regulations (when it comes to account disclosures and honoring CD Terms), but would love to see it or be referred to it. 

 

2
Comment #43 by Alskar posted on
Alskar
I know from reading this blog that brokered deposits are often handled separately from non-brokered deposits when a bank is closed by the FDIC.  For example the posting on Oct 15th contained this language "All deposit accounts, including brokered deposits, have been assumed by Simmons First National Bank". 

So I surmise that the FDIC treats brokered deposit somewhat differently than non-brokered deposits.  Sometimes the acquiring bank will only take the non-brokered deposits and the folks that have brokered deposit get a check for P&I through the day of the closing.  Have a look at this post: http://www.depositaccounts.com/blog/2010/11/uninsured-deposits-at-failed-banks-how-the-fdic-has-changed.html

2
Comment #44 by ChrisCD posted on
ChrisCD
I believe you are semi-correct.  Brokered deposits during a bank closure are often just returned.  This was not an FDIC closure.  The reason brokered deposits are often just sent back is the takeover bank decided the brokered deposits had no value to them. 

So it has nothing to do with different regulations.  In the case of a bank closure it comes down to the perceived value.

1
Comment #45 by Alskar posted on
Alskar
I agree that this wasn't an FDIC closure, but it was supposedly done to comply with an FDIC directive.  Since the FDIC allows acquiring banks to pick-and-choose what they want to do with brokered deposits, it stands to reason that the FDIC considers brokered deposits separately from non-brokered deposits. 

The very fact that Main Street decided that the easiest way to comply with the FDIC directive was to dump the brokered CD's tells us all something about what banks and the FDIC thinks about brokered deposits.

So while I am concerned that this bank decided to break their contract, I would be much more concerned if they decided to do this with non-brokered deposits.  Even so, it still sucks.

4