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What Is an NSF Fee?More Publicity on CEFCU's CD Early Withdrawal Penalty Change
I first mentioned on how the large Illinois credit union, CEFCU, decided to raise the early withdrawal penalty on existing CDs in this January 20th post. This action by CEFCU is getting more notoriety. Allan Roth at CBS Money Watch just published this article, Credit union's CD penalty switch punishes members. In the writing of the article, Allan spoke with the CEFCU's CFO, Chuck Walker. I found the following interesting in how the CFO tried to justify their decision:
He explained that the credit union is authorized to change the penalty under the 40-page agreement that members sign when they open a deposit account.
[...]
There it was -- one sentence buried at the end of section 14, page 22 of the deposit-account agreement. When I asked Walker whether he thought that all CEFCU members had read this document, he admitted that they probably hadn't. The way I read this sentence is that, after giving proper notice, CEFCU could even change the interest rate on existing CDs. But Walker claimed that the credit union doesn't have this right.
In my opinion, it's unfair for an institution to increase an early withdrawal penalty (EWP) on existing CDs based only on a vague and generic overriding clause. As Allan mentioned, this clause could give the institution the right to even lower the interest rate. It appears the CFO didn't understand the importance of the EWP. That might be the reason why Fort Knox FCU made this same change last year and why the NCUA ruled in their favor.
The EWP can be just as important as the interest rate if the CD holder has to close the CD early. For example, if the EWP goes up from 6 months to 12 months of interest, a CD holder would lose all accrued interest if the CD is closed early at one year. That would be like a 1-year CD with zero interest. If the EWP remained at 6 months of interest, it would be like a 1-year CD with an interest rate of about one half of the full interest rate of the CD.
Some have made the claim that it's unfair for customers to plan on an early closure of a CD. However, the disclosures clearly describe the early withdrawal penalties. We accept the penalties for the higher interest rate. If institutions want the right to increase the EWP on existing CDs, at the very least the institutions should highlight this possibility in the disclosure in the same section where the EWPs are listed.
Allan ended the article with a description of what he has done to combat this risk of an increasing EWP:
I get a written confirmation from the institution that the early-withdrawal terms can't be changed for the life of the existing CD. Never do business with any institution that reserves the right to change the terms of existing agreements.
I don't know how easy this would be at some institutions, especially those in which you conduct business online or by phone. If you had success in receiving such a confirmation, please leave a comment. Unfortunately, it looks like it may be the only way we can have some certainty that the institution will honor the early withdrawal penalties in their disclosures.
Did CEFCU Act Fairly?
Be sure to take the poll in Allan's CBS Money Watch article which asks "Do you think the credit union acted fairly to members by changing the terms of existing CDs?". Hopefully, when CEFCU and other institutions see how many people think this is unfair, they will think twice before trying this in the future.
That way, these institutions will have to pay higher interest rates for future CD deposits when potential depositors find out about their history of ripping off their existing customers.
1 sentence in 40 pages may give them the legal right. But its certainly not morally right nor is it good for their long term business.
I encourage members to "vote with their feet" and do not do business with institutions that dont want their business by acting unfairly,
#9. I'd be very surprised to see any agreement with a financial institution that purports to permit the financial institution to change the term of a cd, and more surprised to see any such agreement permitting the financial institution to "change everything" in the agreement with the depositor. institution. The CBS report deals with what isn;t such a broad issue: Does particular language in a financial institution's agreements with depositors apply to early withdrawals of cds and thus permit the financial insitution to change the penalty applicable to such withdrawals with respect to cds in existence?
I think that's what some court needs to get they jerks on. Seriously, If you can amend anything, why hide it under 18 pages. How about, just one sentence "We can do anything with your deposit anytime we want".
Such a clause is not unique to CEFCU or Fort Knox. As I have stated many times for a long time now, EVERY institution I have checked has some such clause somewhere. The only question is if and when they might exercise that clause to change the EWP for existing CDs.
I agree this is very bad business. But as the NCUA ruled in the Fort Knox case, it is very legal. The NCUA has no regulation against it, and they see nothing in contractual law to bar it either.
What is needed it to step up pressure for a change in the law and/or regulations to bar such changes to existing CDs. This article helps that effort. But in the meantime, people taking out CDs -- at pretty much any institution -- better beware that they are taking a real risk if they are counting on the EWP at time of opening to be in place at some later time prior to the maturity of the CD when they might want to close it.
As for getting something in writing from the institution, that is a good idea, even if just an e-mail -- but also beware, that is not necessarily legally binding, would depend. For one thing, it would have to come from some officer with the authority to unilaterally make such a change in the CD agreement, and that's not just any old officer -- and you're not going to find too many CEOs bothering with you on such. The specific language used better be incredibly precise. But frankly, if that is what you want, don't even get it in writing from the CEO, get that clause stricken from the agreement -- without that clause, they can't do it. If you don't sign to that clause they can't do it. That is far better than an unsigned e-mail, yet you sign an agreement to the contrary. An unsigned e-mail -- just their expectation, not a binding contract. When they strike that clause, you can feel comfortable; when all you have is an e-mail, you better continue to worry.
1. Like pulling teeth to get their website to display your most recent e-statement.
2. Got this email today: "CEFCU On-Line System Upgrade Information Earlier today, you received an email alerting you to an approaching upgrade date. Please be assured that, as a user of the NEW CEFCU On-Line, you do not need to make a change, or sign up for the system again. CEFCU sincerely regrets the error...
I voted at http://www.cbsnews.com/8301-505144_162-57373712/credit-unions-cd-penalty-switch-punishes-members
It seams to me that you have never opened a CD or you have never read the agreement attached to the CD papers.
In all of them, there is exclusion clause that says something like:
We reserve any and or all rights to not allow early withdrawals and may modify any or all conditions of this disclosure.
Note: What you are agreeing to, is the disclosure and not an agreement, since there is no agreement between the bank and you when you open a CD.
You are totally on the mercy of the bank or CU should there be EWP or reduction in the rates. The CD is not a negotiated document and as such you have no say on anything, since you already agreed that the bank or CU are calling all of the shots as disclosed in the disclosure papers by following through the opening of the CD.
I have been putting the majority of my savings in CDs for years before and after my retirement. I go with whichever FDIC or NCUA insured financial institution offers the highest CD interest rates and never fret about their early withdrawal penalty. That is why I follow Ken and the site so closely. I never considered cashing in a CD before its maturity. If you think you may need or just want to cash in a CD before it matures, don't lock your money up in a CD in the first place.
Apparently banks and CUs are changing their terms and conditions to meet the changing attitude of the people who put their money into CDs.
As such, when they are telling you of a change in the early withdrawal penalty, what they are in effect doing is giving you advance notice of what it will take to negotiate permission to close. If they can't make that change in the early withdrawal penalty, they can always just deny you the chance to close, leaving you with the only way out to try to negotiate a higher penalty.
If you think about it this way, you can see that the combination of the two clauses means the set up from the get go was never that you could count on closing at will at the original early withdrawal penalty -- because you could not count on being able to close it early at all.
Some of you are mixing EWP as a right to clause a CD, (THERE IS NO SUCH RIGHT), anywhere in any CD disclosure agreements.
What you are agreeing to is the CD’s discloser papers be enforced or modified only by the bank or CU and you have no say about it in any circumstances at all.
What happens if the institution extends the term of your CD to any number of years, changes the interest rate to zero, and refuses to let you withdraw your funds without their approval. This is obvious nonsense. You guys should just put the pipe down and clear your heads. A good lawsuit is the only thing that will clear up this nonsense since the regulators appear to be smoking the same stuff you guys are on.
http://creditunionwatch.blogspot.com/2012/01/citizens-equity-first-increases-early.html
http://creditunionwatch.blogspot.com/2012/02/moneywatch-no-valentine-for-cefcu.html
#26: #24's post is a good one. I don't know about the "we" orientation in your post about "we" telling "what the situation is". I do knopw that there a lot of posts on this blog that overgeneralize things, which makes for sensationalist comments that aren't really helpful. For instance, your mention of the NCUA "ruling" is a generalization: it hasn't ruled on the CEFCU's penalty change, so again, overgeneralizing isn't really helpful in dealing with a particular situation.
Alerting people to the reality and warning to beware does not make one a shill for the banks and CUs. But putting your head in the sand and denying reality is just foolish.
I am concerned about banks which put an X in the box which gives them the right to rollover our funds at maturity into another CD for the same time period. I called about this and was told we could send them a letter a month before maturity and give instructions to close and send us the final amount in a check. My concern is that if we get sick and/or forget to send the letter, our money is tied up for another 5 years or whatever the old CD time frame was. I prefere the banks which allow you to check (X) a box on the CD telling them to close and mail us the check upon maturity.
However, in the CD I am looking at now and I think any others I have, I cannot recall ever seeing a phrase stating in plain English that they have the right to change a penalty. I think they get around this by refusing to give a withdrawal. I would love to know how Fort Knox got away with changing theirs and what was the wording in their CD which allowed them to do so since it was allowed when even Ken tried to investigate it. I have never had one of their CDs so I do not know how they word them. If anyone knows, could you please share so that I may be on guard for such wording with my own. Thanks!