Update 2/18/2015: Good news! Valor Credit Union has decided not to implement this new CD fee. I received confirmation this afternoon from a Valor official. They will be notifying members with this letter.
Valor Credit Union (formerly Tobyhanna Federal Credit Union) has mailed a new fee schedule to its members that includes a 3% processing fee for additional deposits on CDs with terms over 60 months. The new fee takes effect on 3/17/2015. The Prime Rate Certificate is no longer available so this new fee can only affect existing Prime Rate Certificates. One of the features that made the Prime Rate Certificate attractive was the ability to make additional deposits. Once this new fee takes effect, add-on deposits will become very costly.
Thanks to the reader who found this change and alerted me. I contacted the credit union and confirmed the new fee is scheduled. Below is an excerpt of the email the reader received about the new fee from Valor Credit Union:
Thank you for inquiring about the Prime Rate CD and the new 3% processing fee. This is a newly-instituted fee that will apply to our CD products with a term of more than 60 months, including the Prime Rate CD.
There will be no fee assessed for deposits made to your Prime Rate CD before 3/17/15. Beginning on 3/17, any deposits into your Prime Rate CD would be charged this new 3% processing fee.
You may continue to add funds to the CD at any time, but each deposit after 3/17 will be subject to this fee.
According to the reader, the credit union only listed the new 3% processing fee in a new fee schedule that he received in the mail. The fee schedule listed around 40 various fees. Unless members look through the entire fee schedule, they can easily overlook this 3% processing fee. Many members with the Prime Rate Certificate will likely be shocked when they try to add money to it after 3/17/2015.
Valor Credit Union’s Prime Rate Certificate was unique in that it allowed additional deposits. Typically, CDs only allow one deposit when the CD is opened. The add-on deposit feature made the CD attractive and it helped to offset the CD’s downsides like a long 7-year term and a harsh early withdrawal penalty.
Valor Credit Union’s new 3% processing fee on additional deposits will essentially negate the benefit of making add-on deposits. The Prime Rate Certificate had an interest rate of 3%. Thus, it will take about a year for additional deposits to earn enough interest to cover the processing fee.
Valor Credit Union may claim that the original terms of the Prime Rate Certificate are being maintained since add-on deposits are still allowed. However, the new processing fee has a material impact on the Prime Rate Certificate’s value. It’s similar to the impact of increasing an early withdrawal penalty. If this fee had been specified to members before the CD was purchased, fewer members would have opened it.
This is another case of a credit union retroactively changing the terms of its CDs. It’s similar to the cases when Fort Knox Federal Credit Union and CEFCU increased their early withdrawal penalties on existing CDs. Both of these credit unions claimed that their member agreements gave them the right to change the fee schedule at any time. The only limitation is that they must notify members of the changes within 30 days of the changes taking effect.
Even if these credit unions believe that making these changes isn’t breaking any rules, the changes are sneaky and unfair in my opinion. I wonder what the Consumer Financial Protection Bureau (CFPB) would think. The following is an excerpt from the CFPB’s "about us" page describing their mission:
ensuring that consumers get the information they need to make the financial decisions they believe are best for themselves and their families—that prices are clear up front, that risks are visible, and that nothing is buried in fine print.
In my opinion, Valor members didn’t get the information they needed when they opened the CD. There was no indication that additional deposits would be charged a 3% fee. If a credit union can charge fees on deposits into a CD, what stops a credit union from adding a withdrawal fee when a CD matures?