On Monday it appeared that GTE Financial Credit Union had decided to unilaterally change the terms of existing promotional share certificates that had been opened in 2018 and 2019. That decision became official yesterday based on an email to members which described the change. The relevant excerpt of the Wednesday email reads as follows:
GTE Financial has updated the terms of its Add-On Certificates effective 9/29/2019. You can now utilize the add-on feature to deposit up to $6,000 per year, per certificate, for each year of the term. Your rate and term will remain the same.
I have good news to report. GTE Financial decided against this change. Today they sent out a new email to members with the subject “Please disregard our previous email regarding your share certificate.” The relevant excerpt of this email reads as follows:
While the promotion is no longer being offered for new share certificates, GTE will continue to honor the terms of the share certificates that were opened by members during the applicable promotional period and allow for additional unlimited deposits.
In summary, members who opened those promotional share certificates will be able to continue to make unlimited additional deposits as specified in the original disclosure and in the original terms that were listed on GTE Financial’s website. The original terms of these promotional certificates included the sentence, “Add-On option available in deposits of $20 or greater throughout the term of the certificate with no cap.”
When news of this issue first came up on Monday, I immediately attempted to contact GTE Financial management for information about their decision and to remind them about how serious of an issue this was. I did not receive a reply until this morning when I was first told of the good news that they changed their minds.
Past Cases of Credit Unions Changing Terms on Existing CDs
Long-time DA readers will likely remember the many past cases of credit unions that have tried to change terms on existing CDs. Unfortunately, most of these past cases didn’t have outcomes favorable to the members. Past examples of credit unions which changed terms on existing add-on CDs by not allowing additional deposits include United Services Credit Union in 2006 and Valor Credit Union in 2015. In addition to changing terms on add-on CDs, credit unions have changed terms on existing standard CDs by increasing the early withdrawal penalties. Past examples of credit unions include Fort Knox Federal Credit Union in 2011 and CEFCU in 2012.
Another case of a credit union that changed terms on existing CDs by not allowing add-on deposits was Achieva Credit Union. This case was detailed by this 2014 Tampa Bay Times newspaper article. I have a summary of this article in this 2014 blog post.
The article described how the Achieva member persevered for many months to try to get Achieva to honor the terms of his two add-on CDs. The Achieva member spent many hours corresponding with the NCUA and with the Florida Office of Financial Regulation. Eventually, the NCUA’s Office of Consumer Protection declared that Achieva’s disclosures were “not clear and conspicuous - a violation of the Truth in Savings Act.” Achieva was also instructed to work with the Achieva member “to reach an amicable resolution.” Unfortunately, the NCUA provided no promise to enforce the ruling. Achieva didn’t agree to honor the member’s reimbursement request for lost interest until the member sought help from the Tampa Bay Times.
As I described in 2014, this Achieva case is a disturbing example of the risks of relying on CD terms. The institution can decide to use legalese to change the terms of the CD before maturity, and the customer will have an uphill battle to change the institution’s mind.
I’m relieved that GTE Financial Credit Union decided not to go down the road that Achieva took. I’m not sure what happened to convince GTE Financial management to reverse its decision. I think our efforts to contact GTE Financial and inform them about the seriousness of this matter helped to change their minds.
One thing that I plan to do is to include links to this blog post any time I mention an add-on CD. This will be intended to provide warnings about the risks of add-on CDs. The add-on feature can be very useful for savers as a hedge against falling interest rates. It can be a big win for savers when there’s a large drop in interest rates. However, that big win for savers becomes a big loss for banks or credit unions. If the institution doesn’t take into account the worst case scenario, the institution may find itself in a difficult position when large add-on deposits are made after major declines in interest rates.
The wise institutions typically limit add-on deposits to some maximum level to limit their potential loss. Of course, this limit on add-on deposits should be clearly specified in the disclosures before the CD is opened by members. Those institutions that are not wise are more likely to be the ones that think it’s okay to change terms on existing CDs. In summary, be cautious of institutions which offer CDs with unlimited add-on deposits.
Fortunately, GTE Financial is a fairly large credit union with close to $2 billion in deposits. They will likely be able to handle a large rise of deposits that earn over 3% even if we return to a zero-rate environment. That possibility will be costly for them, but they can take comfort that they did the fair and right thing. Plus, they will save a lot by avoiding the bad publicity and the years of fighting with regulators and members.
Thanks to all DA readers who shared their experience on this issue by posting in the DA Forum and by emailing me. There is definitely strength in numbers, and by working together we can help ensure institutions honor their agreements with their members and customers.