Valor Credit Union Stops Accepting Add-On Deposits on Prime Rate Certificates

Valor Credit Union sent letters to members with Prime Rate Certificates informing them that they are no longer accepting add-on deposits into these certificates. This is a hurtful change in terms for members with Prime Rate Certificates. Valor Credit Union attempted a similar change in February when they announced a new 3% processing fee for additional deposits on CDs with terms over 60 months. However, after an uproar from members and this blog, Valor changed its mind and decided not to implement the CD fee. I’m surprised that Valor would try something like this again. I’ve emailed my Valor Credit Union contact requesting that they reconsider this change. Below is a copy of the letter that Valor Credit Union sent to members. It was dated 12/23/15. Readers reported receiving this letter on the 26th.

Dear Member:

Consistent with our reserved right to amend the terms of the Prime Rate Certificate product, we have elected to amend the product to the extent that, until further notice we will no longer accept add-on deposits into the Prime Rate Certificate.

Additionally, we are pleased to announce that until further notice we will waive all penalty fees if you wish to withdraw funds from your existing Prime Rate Certificate. If you wish to withdraw funds, please contact us at 1-844-VALORCU (825-6728) or visit your nearest branch location to speak with a Member Service Representative.

In deciding whether you may want to remove funds from your Prime Rate Certificate, please note that the amount of federal insurance provided by the NCUA for deposits in products offered by federal credit unions is $250,000. Amounts over that are not federally insured.

We appreciate your continued membership.

Regards,
The Team at Valor CU

When a CD (or a certificate as it’s typically called at credit unions) is issued, the customer and the institution agree to certain terms such as the interest rate, maturity and early withdrawal penalties. The general opinion from experts is that the terms of a CD should be maintained until the CD matures.

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 isn’t the only credit union that has tried to retroactively change the terms of its CDs. 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. This appears to be similar to the claim Valor is making. However, there is one important difference. Fort Knox FCU was given allowance for the change by the NCUA, but the NCUA did point out that a written change-in-terms notice must be sent at least 30 days before the effective date of the change. In this new Valor Credit Union case, there is no 30-day notice.

When I emailed my Valor Credit Union contact last February, he first explained why the decision was made to implement a fee to discourage add-on deposits:

It allows the Credit Union to control and manage the influx of cash. To date, the Credit Union has attracted over $53,000,000 into the product. Without a mechanism to control this, the Credit Union cannot manage its balance sheet properly.

Soon after that email, he sent a follow-up email announcing that they had changed their mind on the fee. I’m hoping that this will happen again. However, things appear to have become worse for the credit union since February. As DA member Lou described in the forum, Valor’s financial condition has deteriorated. If Valor fails and the NCUA arranges for another credit union to take over, the new credit union is free to lower rates on any of the existing CDs. Thus, it’s in the interest of members to keep Valor financially healthy. However, as DA member Pearlbrown said in the forum, "a financial institution must be prepared to stand by its decisions, just as we are. If terms of contracts can be changed unilaterally, then how can we conduct business with financial institutions or with each other in good faith?"