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Darby Direct: Add-On Feature Will Remain on Existing 36-Month Step-Up CDs


Readers have received an email from Darby Direct informing them that they can continue to make additional deposits to their 36-month Step-Up CDs as allowed in the original terms of the account. Here's an excerpt of the email:

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!

In February Darby Direct sent an email informing customers that they would no longer be able to make additional deposits to their 36-month Step Up CD after February. As I explained in that February post, this was an important issue regarding the right of a bank to change the terms of the account disclosure on an existing CD.

I know several readers had reported this to the FDIC. Perhaps that helped convince Darby Direct that they should honor the original terms of the account. The reader BestCashCow reported to have talked with a FDIC representative on this issue. Here is what he reported:

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.

Another reader described in the comments his interaction with the FDIC and the bank complaint process:

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.

It's nice to see Darby Direct will honor the initial account disclosure. However, I noticed they did include "at this time" in their email which seems to indicate that they don't believe this is an obligation on their part.

Let's hope this CD doesn't over stress them. This 3-year step-up CD was offered from August through November 2009. The rate starts off with a 3% APY for the first year. It then goes up to 4% for the second and 5% for the third. I'm sure many customers were planning to make substantial additional deposits to take advantage of those higher rates.

It should be noted that Darby Bank is 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. If regulators take over the bank and the FDIC is able to find a buyer, the acquiring bank is then free to change the original account disclosure of these existing CDs. If the FDIC can't find a buyer, it'll mail customers the checks of their deposits up to the FDIC limit. So it would be wise to avoid adding too much to these CDs that would cause your total balance at Darby to go over the FDIC limit.

Thanks to the readers who commented on this and emailed me news of this.

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Brad (anonymous)   |     |   Comment #1
I sure hope it is not "1 step forward, 2 steps back" with this CD.  The CD as offered contained three very beneficial rules (the item numbers are mine, and not Darby's):

1.  Escalating interest rate (3% first year, 4% second, 5% third)

2.  Additional deposits at any time (minimum $500)

3.  10 day penalty free withdrawl window on each anniversary date.

They rescinded #2 in February and have now just reinstated it.  However, the problem is, the revised account disclosure now DOES NOT include the 1 page addendum (that had been there previously) that lists benefit #1 and #3.  Do these benefits still apply but they just aren't listing them?

To me, if you were going to try to change rules after the fact, #2 would be the least troubling to me, since it wouldn't change terms of funds that were already in there.  If you change #1, then someone receives lower interest than what you promised them when they locked up that money.  If you change #3, then someone who locked up funds, assuming they had a guaranteed chance to access the money once a year penalty free, now might not be able to do so?

I don't know for sure that #1 and #3 have been removed, just that the addendum is no longer there. 

Also it seems they are no longer offering the "breakable" option on the 18 month CD, I hope that they have not decided to take away this feature for those that put money in when they were advertising breakable.
Anonymous   |     |   Comment #2
When I first spoke to Darby questioning their ability to do this, I was told that changing the add-on terms are "different than changing the interest rate or maturity date" and they felt they could do that. So I doubt they will try to change the interest or maturity date. However that said, I have a feeling Darby won't last until the rate hike (hopefully they will)... but it was my impression that even they knew not to mess with financial part of the terms (the "add on" was a feature, not really a financial part of the CD).
Anonymous   |     |   Comment #4
To #3, read the main post about Darby on the main page here. It has links and mentions their current ratings are the lowset possible (1, and 0) -- a sign of a troubled bank (they also have an FDIC action). I'm a Darby customer too and I'm hoping they can survive (not just for my own self-interest; I have to say that everyone I've ever dealt with at Darby both over the phone and in person has been pleasant and cordial... not always the case with other banks). But their financial condition right now is pretty bad. I hope they will be able to make it through these rough times and survive.