About Ken Tumin

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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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.

Related Pages: CD rates
I hate Fort Knox CU
  |     |   Comment #1
We need a 'hall of shame' section here with an ongoing list of banking/cu institutions that ripped off their depositors by changing terms of existing CD accounts.

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.
  |     |   Comment #2
Penfed's CEO sented me an email after I questioned changing the EWP stating that existing CDs will never have their EWP changed.
Allan Roth
  |     |   Comment #3
Anonymous #2:  Good for you confirming with PenFed!  I've done the same with them.  They did change an early withdrwal penalty but only for new CDs.  I've had very good experiences with PenFed.
  |     |   Comment #4
The Illinois' credit union change in the early withdrawal penalty (EWP0) didn't appear justified to me based on the "one sentence" alluded to in the CBS reporter's story.  As I recall from reading this sentence, the sentence referred to the credit union's right to change rates and fees. I'm a retired attorney and would argue that an EWP is in a category of its own:  namely, penalties and clearly not in the category of a rate nor a fee(typically exemplified by a monthly fee for a deposit account or for some service the institution provides (e.g., a fee for a cashier's check or for a copy of an archived statement)).
  |     |   Comment #5
This just comes down to a simple "good business" thing.

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,
Allan Roth
  |     |   Comment #6
Anonymous #4.  Interesting.  I'd love you to post this on the article itself.  If the credit union has the right to change the agreement, couldn't they amend the agreement to allow them to change the early withdrawal penalty?
  |     |   Comment #13
#6. In the CBS report, there is a quote that's stated as supplying the basis for a change of an early withdrawal penalty--i.e., the credit union's righ to "change the rate schedule and/or fee schedule at any time". I would be surprised if early withdrawals of CDs are available as a RIGHT of the depositor at any significant number of financial institutions--instead, I would expect that whether a financial institution permits an early withdrawal of funds in a cd would very likely be a matter under the sole discretion of the financial institution. Accordingly--and looking at the additional term "fee schedule"--I'd argue that a reasonable person would interpret the quote in the CBS report as pertaining to something other than an early cd withdrawal, because (a) there appears to be no such thing as a "schedule" for an early cd withdrawal, and (b) fees appear to be almost universally be charged for a service rendered by the financial institution (wire transfers, etc.) or as a result of some action under the control of the depositor (i.e., the depositor;s failure to maintain a minimum balance in the account, etc.), and not something within the financial institution's discretion (as I've noted, whether the financial insritution, in its sole discretion, permits an early cd withdrawal).

#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?
  |     |   Comment #7
I would love to see an attorney on behalf of those depositors, who were hurt by this retroactive change in EWP, sue both these institutions. I bet a jury of 12 people might rule for the plaintiffs and impose a very costly penalty on these credit unions for engaging in these unethical and dishonorable acts.
  |     |   Comment #8

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".
  |     |   Comment #9
Unfortunately, having language saying that the bank can do whatever it pleases later on is becoming more commonplace. Even a year and a half ago, when I opened a nice CD with a good 90-day EWP, there was similar non-specific generic language saying that the bank can change terms of the CD if written notice is given to its customers (and also had the power to decide whether or not to even ALLOW a customer to do an EWP or close the account early, even with penalty). The CD was such a sweet deal for other reasons, that I took it. I'm hoping not to have to ever withdraw early, but it seems lately, that from the institutions I've been dealing with, at least, they're putting that clause in there -- giving them total control to change everything (though they insist not the rate) to please them at any time. It really is a scandal, but if that clause is in there, what else are we do to? I have a feeling it will now become the standard template that EVERY institution will soon be using. In other words, "we can change whatever we want at any time, while you are locked in. Don't like it? Don't bank with us."
  |     |   Comment #10
That clause in the CEFCU agreement in Roth's article is just about identical to ones I have pointed out applying to many or most or even all CDs. Other institutions use that or different language that provides for similar. They're part of the contract.

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.
  |     |   Comment #11
CEFCU is an inept outfit.

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...    
  |     |   Comment #12
They bought a failing CU in California. They have branches only in Illinois and California. Apparently they have national ambitions.

I voted at http://www.cbsnews.com/8301-505144_162-57373712/credit-unions-cd-penalty-switch-punishes-members 
  |     |   Comment #14
To Anonymous - #13,

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.
  |     |   Comment #23
#14, Try reading post #13 again. Post #13 clearly agrees with the position that a depositor should not look at early withdrawal of a cd as his or her right but should expect an early cd withdrawal to be at the sole discretion of a bank or credit union. You seem to have misunderstood the main point of post #13, which is that in the CBS News article, the language relied upon by the credit union raises a question of whether it supports the credit union's position on early withdrawal penalties. A cd in the banking industry (an industry in which I've worked) is known as a "time deposit", a form of savings deposit, and while you're right that a cd isn't a "negotiated document", that's irrelevant--it's still a deposit and deposit accounts of a bank or credit union ARE covered by agreements a bank or credit union has with its depositors and some parts of banking/credit union agreements apply to checking deposit accounts, some to savings deposit accounts, etc.. Readers of this blog who say that banks or credit unions can operate without any restrictions with regard to accounts in their bank or credit union and can just do what they want and when they want with those deposit accounts need to get their facts straight because banks and credit unions have agreements covering deposit accounts covering some specific things can can be done by the bank or credit union and when those specific things can be done.
  |     |   Comment #15
Larry, the explicit language you cited allowing the credit union to prohibit withdrawals is not in every credit union's disclosure. I have many cd's from a number of credit unions and banks and none of them include this language. I refuse to purchase cd's from any institution that has that language.
  |     |   Comment #16
Perhaps many of you shouldn't be putting your money into CDs.  Apparently you do not read the disclosure agreements or don't think they apply to you.

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.
  |     |   Comment #17
I hope the banks don't change their attitiude about having no prepayment penalty on my mortgage.  Of course they would allow me to pay off the entire mortgage if I don't agree to the new 10% fee.  What will the apologists say then? 

  |     |   Comment #18
That's the kinda crap the gov't is already pulling.  If you paid your mortgage on time you keep paying.  If you paid to much then the bank will trim some off and lower your rate.

  |     |   Comment #19
An angle on the legality of this that to date has not really been expressed: These agreements typically not only have a clause, as vague as it might be, that allows for changing the early withdrawal penalty during the term of the CD, but they also generally have a clause or other language that says an early withdrawal can be made only with the permission of the financial institution. Combining the two, the concept then pretty well makes any early withdrawal penalty a matter of negotiation no matter how legally binding the originally stated penalty might technically be, as they can deny permission to close -- but if you want to negotiate a high enough penalty to get them to change their mind about denial, then they will allow it. That ability to deny an early withdrawal is a very overpowering clause and effectively trumps any early withdrawal penalty clause.

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. 
  |     |   Comment #21
Larry - #14 and me1004 - #19 are absolutely right in their observations of EWP.

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.
  |     |   Comment #22
To Anonymous - #15, yes Sir, it is in every CD discloser papers, may not be explicite or spelled out to you, but is there in a form that is not allowing to do EWP and the clauses can be changed by the bank or CU at any time.
  |     |   Comment #24
This thread has become a joke. Some posters on here must work for some sleazy banks or credit unions. They apparently think that the institution can change anything that they want to change regardless of what is stated in their disclosures as long as they state (in the fine, fine print and in very ambiguous terms) that they can unilaterally change their disclosures at any time in their disclosures. In short, their disclosures don't disclose anything. Here is a question for me1004, #16, and especially #20-- Should anyone ever sign an agreeement where the other party to the agreement can change (later and without your consent) what you have agreed to??? According to you guys, that is what you are doing when you open an account with a bank of cu. Seems like you wouldn't know what you are agreeing to.

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.

  |     |   Comment #25
  |     |   Comment #27
#25:  All this post does from a guy connected with the ABA is to post Ken's blog. I don't see much "weighing in".

#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.
  |     |   Comment #26
To Anonymous #24: You misread. We are telling you what the situation is, not backing it. What you miss is that even if you don't believe what the disclosure says when it adds a clause allowing for those things, or believe those posters warning you about it, the NCUA has ruled on it and says it is legitimate for financial institutions to do that. 

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.
  |     |   Comment #28
#26: the NCUA ruled on the Fort Knox penalty change, saying it was fine and dandy for them to do so to existing CDs. That is not an overgeneralization, it is a fact. The discussion here is whether this is or should be allowed generally, and the NCUA has ruled it can be done. All that the posters here are saying is that those who are taking out longterm CDs with the idea that such changes can't happen better beware. As for whether it should be allowed, posters are on both sides of that issue.
  |     |   Comment #29
Where has anyone ever seen a CD with a disclosure which gives the bank or CU permission to change the maturity date of a CD?  All I see are clauses which give them the right to change the EWP  at their discretion.  If we leave our money intact except for withdrawing monthly or quarterly interest checks, we should have no concern about getting our full amount back at maturity.  

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.
  |     |   Comment #30
Apache-Please give an example of a clause at any bank or cu which gives them the right to change an EWP at their discretion. I'll be shocked if you can find one that even mentions the changing of an EWP. The whole idea of changing the EWP is nothing but a deceptive business practice and they would never say that in plain and understandable language. This idea would be found illegal by any judge or juror not employed by a bank or cu. There are many good and honest instutions but just a few like the two mentioned in this thread give all banks and credits unions a bad name. The biggest rotten egg in this mess is the NCUA regulators who refuse to do their jobs. Anything can be called legal by these clowns until it is tested in a court of law. If they are correct, there is no need for a disclosure since the institutions can do anything they want at any time.


  |     |   Comment #31
#30  Too bad I did not get to see your request earlier but it is too late tonight for me to pull out the CDs and post them.  However, just upon looking at one, I saw under the EWP for one:  "If we consent to a request for a withdrawal that is otherwise not permitted, you may have to pay a penalty."  They then give the penalty.  The word which, imo, gives them their power is the big "IF".   All they have to do is protect themselves with one word like this "If" and the ball is in their court as you found out with the Fort Knox case and that wasn't a bank but a credit union.    "IF" is their lottery ticket to win a case against us if we try to take it higher up, imo.  This is why, I feel these days we should be careful locking up funds we may need to withdraw before maturity.  These aren't the days when banks or even credit unions needed customers so badly that they would bend the rules for us.

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!


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