DA readers with Valor Credit Union Prime Rate Certificates have reported in the DA forum and in emails about receiving certified letters from Valor. I have not seen a copy of these letters, but based on readers’ descriptions, the letters include a release form in which the member agrees not to pursue further action against Valor for changing the terms to their Prime Rate Certificates (no longer accepting add-on deposits). In return, the credit union will allow add-on deposits of up to $25,000. The letter asks that the form be completed by March 31, 2016. It also mentioned that Valor will follow up with the member in the near future to acknowledge receipt of this letter and to answer any questions regarding this one time offer.
The letter also included a "reminder" that Valor continues to waive all early withdrawal penalties until further notice should members decide to withdraw funds from existing Prime Rate Certificates. This is the same waiver that Valor announced in December when they first announced that they are no longer accepting add-on deposits into Prime Rate Certificates.
One thing that’s not clear is if this letter and release form have been sent to everyone who has a Prime Rate Certificate. There’s speculation that it was sent only to those who complained and/or filed complaints with the CFPB or NCUA. It’s also not clear if everyone received the same offer.
From what I’ve seen, it appears that the management at Valor Credit Union has recognized that it made a bad decision in December (see my December blog post). In an attempt to rectify things, they’re making this offer. The offer seems to imply that the December change of terms of the Prime Rate Certificates (add-on deposits are no longer accepted) is still in effect. By signing the release form, the member will have the right to make up to $25K in add-on deposits, but the member gives up the right to pursue further action against Valor.
It appears that Valor continues to maintain that it has the right to unilaterally amend the terms of existing Prime Rate Certificates. However, Valor may realize that regulators and the courts may disagree.
If members choose to sign the release form, they should be able to make add-on deposits of up to $25K. Members will have to ask themselves if they trust Valor to not make other negative changes to their existing Prime Rate Certificates in the future.
If members choose not to sign, they may have to fight to maintain their right for unlimited add-on deposits. That fight may include pressuring regulators to rule against Valor and/or suing Valor in court.
There’s also the question of how much financial damage is being caused by these Prime Rate Certificates. It’s clear that Valor made a mistake with these Prime Rate Certificates. The unlimited add-on deposit was too costly. An honorable action would have been to stand by the original terms of these Prime Rate Certificates and live with the financial consequences. What if the financial consequences put the credit union at risk of failure? I can’t say if the financial consequences are that severe. Last September, Valor’s CEO abruptly left. According this Times Tribune article, he left "in the middle of one of its worst years in recent memory." If the credit union should happen to fail, the NCUA would likely find another credit union to take over. In that case the new credit union would be allowed to change the terms of all existing certificates. Those changes can include a lower interest rate.