When a Credit Union Doesn’t Honor the Terms of its CDs

A good CD deal involves more than just a top interest rate. Certain features or terms of a CD are also important. One example is the early withdrawal penalty. Credit unions and banks sometimes will give CDs special terms to make them more appealing. The add-on feature is one example. This can allow a customer to make additional deposits into the CD before it matures.

A CD with favorable terms like unlimited add-on deposits can be a great deal. However, that great deal depends on the institution honoring the terms until maturity. We have seen a few credit unions that have failed to do this. There has been another case of this.

A member of Achieva Credit Union described his ordeal with an add-on CD in this Tampa Bay Times article. In 2010 the member, Mike Jordan, and his wife opened two 5-year add-on CDs at Achieva. According to the article "the "add-on feature" is spelled out on the CD itself." When they first made use of the add-on feature six months after the CDs were opened, Achieva allowed the add-on deposit. However, when they tried the second time, the credit union refused to allow the deposit. Achieva claimed the wording in the terms that said "holders may add money" gives the credit union the right to disallow the deposit.

The Achieva member then began a long effort to force Achieva to honor its terms. According to the article, he contacted nearly 75 people. He filed a complaint with the NCUA, and then the NCUA sent it to the Florida Office of Financial Regulation. This was probably done since Achieva isn’t a federal credit union. The NCUA isn’t the primary regulator for state-chartered credit unions. The Florida regulator didn’t find a violation of state codes, but it didn’t end there. The complaint went back to the NCUA since the complaint was an alleged violation of the Truth in Savings regulation, and that fell under the NCUA oversight.

After many months the NCUA finally made a ruling. According to the article:

The NCUA's Office of Consumer Protection wrote Jordan declaring that Achieva's disclosures were "not clear and conspicuous — a violation of the Truth in Savings Act."

But that didn’t end his ordeal. The NCUA made no promise to enforce its ruling, and Achieva continued to refuse to honor the CD terms. That finally changed when the newspaper contacted the credit union. Achieva decided to reimburse him for the lost interest. However, Achieva officials still think the credit union did nothing wrong, even after the NCUA ruling.

I’m afraid this 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. We first saw an example of this with United Services Credit Union in North Carolina. It decided to renege on the add-on deposit feature of its special CDs (see blog post and comments). We have also seen a similar issue with early withdrawal penalties. Both Fort Knox Federal Credit Union and CEFCU chose not to honor the early withdrawal penalty on active CDs (see blog post).

It should be noted that many credit unions have acted honorably when they made changes to the terms of their CDs. When they made changes, they applied those changes only to new CDs or CDs that have matured. PenFed did this when it increased the early withdrawal penalty on 5-year CDs. Amplify Credit Union did this with its add-on CDs.

Even though most credit unions have acted honorably, we should be aware there are risks of a credit union reneging on the terms. The risk is probably higher for better deals. An unlimited add-on deposit feature can be a great deal, especially when rates stay low like they have been. Credit union officials may not realize how costly this can be for the credit union. Please keep this in mind for the add-on CD deals that are currently available.

Thanks to DA member Jeff who posted on this news in the forum.

Anonymous | Jun 24, 2014 | Comment #15

It never ceases to fascinate me how little the average poster on this site know about law. This controversy boils down to nothing more than a contractual dispute. Achieva issued CDs with some ambiguous language that it applied inconsistently. As a matter of law, courts construe such ambiguities against the drafter. Since Achieva had previously accepted additional deposits without reservation, it would, as a matter of contract law, likely have been estopped from arguing that it had discretion to bar additional deposits. However, the fact that Achieva had previously accepted additional deposits also works against the argument that it was engaging in fraud. So, the bottom line here is that Mr. Jordan should have taken his problem to court like everyone else. It certainly appears that he had the leisure to do so. Like it or not, the NTEU doesn't exist to serve as anyone's personal attorney. Particularly when appropriate remedies are available at the local courthouse.

me1004 | Jun 25, 2014 | Comment #18

I disagree with you. In fact, the NCUA is there to make sure -- and prosecute if needed -- that CUs provide truthful disclosures.

For you to expect Jordan to do so on his own is to favor a system where CUs can do anything they want because few people can afford the price a lawyer would charge to carry such a litigation, which could run into years of legal bills -- and this over relatively small potatoes. So, the NCUA has been given charge over these matters.

What you are pointing out is contractual fraud is the violation of the Truth in Savings laws that the NCUA is supposed to enforce. The NCUA could have issued the bank an order. It did not. If the ban refused to honor the order, the NCUA could have taken the matter to a prosecution.

Also, your logic is faulty anyway. If Achieva has the option to allow an add on, granting one add on today does not mean it must grant all further add ons forever more no matter what, unless it says something to communicate that. The permission they grant is for THIS add on, not for ALL add ons. Each add on is a separate decision.

Anonymous | Jun 25, 2014 | Comment #19

Sooooooooo, is this like the local police posting the arrests in the community AND no posting any metrics on convictions/jail time? Where are the metrics that measure success of (any) regulatory agency...unless/until released on a periodic basis it is all smoke and mirrors! The public only "delegates" to NCUA IF it accomplishes it mission(s) and serves the ones that are the recipients of the fiduciary duty owed them by the CUs with "oversight" by NCUA.

Comments

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25 Comments.

OldGuy | Jun 24, 2014 | Comment #1

Thanks for doing this post. Although the ability of banks and credit unions to retroactively change CD terms and conditions, including EWPs and add-on features, has been extensively discussed over the years on this site, we all need a reminder from time to time not to place undue reliance upon promises by financial institutions--even promises in made writing. Financial conditions change, managements change, regulators change--and the laws designed to protect investors and consumers always seem to be pretty toothless.

Jeb (anonymous) | Jun 24, 2014 | Comment #2

Ridiculous that this is treated as a regulatory issue when it is fraud committed with criminal intent. Achieva officials can continue to "think the credit union did nothing wrong" behind bars with the other remorseless felons.

planxy | Jul 2, 2014 | Comment #26

No bankers have been prosecuted for their roles in the Great Financial Contraction after 2007 even now. From the 1989 and after collapse, perhaps 100+ were. Instead the regime rewards them with huge bonuses in return for their support of limousine liberalism.

Anonymous | Jun 24, 2014 | Comment #3

I have read most of the terms on all CDs that I had in the past and all banks and CU allow themselves to modify it or change it at will, on some even without prior notice and there is nothing a consumer can do to protect himself/herself, it is included in the disclosure and approved by FDIC, banking regulations and FTC.

me1004 | Jun 24, 2014 | Comment #4

The most disappointing thing here is that the NCUA decided not to enforce anything. Its their job to enforce, and they refused to do their job. It should have been as simple as filing a complaint telling what happened,and the NCUA should have jumped on the CU to honor the CD terms or be prosecuted. I'm more bothered, and even sacred,by the NCUA's inaction than I am by the CU's fraud. I do wonder if the newspaper took the NCUA's comment about it being a violation out of context that might show that was a personal opinion only.

RELATED, some generally unknown add on CDs out there: I noticed in reading the disclosures from Third Federal Savings that they allow add on deposits on all their CDs. They don't even mention that when you open the CD! The catch here, though, is that they do explain that is allowed only with their consent -- so you are not guaranteed that you can add on, but it is possible. This seems to be the attitude that Achieva wanted but lied about.

Anonymous | Jun 24, 2014 | Comment #5

Credit Unions and Banks know the costs of add on features long before they offer them. They may not know the exact costs because of the potenial changes in interest rates, but they have factored in those worst case senarios into their offereings. The main point of this article is that there are some institutions that you just can't trust to do the right thing for the customer. I can understand the greater potenial for a bank of misconduct, since they are purely profit based. But when credit unions do these unethical and illeagal things to their own members, who actually own a share of the institution, that kind of gall I think is unforgiveable, Sure, you don't want your credit union to go belly up because of some dumb financial decision the pres. or board made, but we don't expect to be ****ed by fellow members that we vote into those offices either.

MidAtlantic | Jun 24, 2014 | Comment #7

I received this from IGO banking today:

Effective August 1, 2014, our iGObanking.com® CD early withdrawal penalties for new accounts and renewals will change as follows:

Early withdrawal penalties (a penalty may be imposed for withdrawals before maturity). Penalty may reduce principal.

• If your account has an original maturity between three years and less than seven years: The fee we may impose will equal one year simple interest on the amount withdrawn subject to penalty.

This change will be applicable to your account at time of renewal.

At least it seems to be saying that the change will be for renewal (which I will not be doing) and not retrospectively.

Anonymous | Jun 24, 2014 | Comment #10

No different than "politics". You get what you vote for.

Anonymous | Jun 24, 2014 | Comment #8

The major problem, in my view, is that a cu does not know they have a fiduciary duty to their members and, thus, strict liability. Otherwise, who are they serving? They serve their members, not "themselves"! Most cu do not get it! Banks operate for their shareholders. Thus, push the fiduciary duty issue.

One related item is...how many people know that a cu could issue "bonus dividends?" When I went to a cu annual member meeting last month...I mentioned it off-line to some officers. They had never heard of it!

Ask about bonus dividends when "you" ask about fiduciary duties! If a cu was concerned about "too low of rates," the answer is a year-end bonus dividend!

Anonymous | Jun 24, 2014 | Comment #11

I wonder if there is a list of credit unions that do offer "bonus dividends"? I'd tend to rather do business with them.

Anonymous | Jun 24, 2014 | Comment #12

Dividends: A Huge Differentiator for Credit Unions

http://thefinancialbrand.com/4348/memeber-dividends-differentiate/

Anonymous | Jun 24, 2014 | Comment #13

Thanks...what I've seen is a formula that takes into consideration a member's deposits AND loan activity, i.e. an incentive to give "your" cu business!

Anonymous | Jun 24, 2014 | Comment #9

Funny how things never get resolved until the case is taken to the media. Once it becomes a potential public black eye, then the guilty party will usually concede to avoid negative press. Let this be a lesson to all of us. Never go through the long process of dealing with the banks, credit unions or regulators. Go straight to a media threat and it'll get resolved overnight.

paoli2 | Jun 24, 2014 | Comment #14

When it comes to making a "media" threat, one has to be willing to follow through on it, if necessary. They have to believe you are the type to follow through because if they think it is an empty threat, they still won't cooperate. I only use this as a way of getting a problem resolved if all other ways fail.

Anonymous | Jun 24, 2014 | Comment #16

Use of the courts, lawyers, ect. are why doing business in this country is so expensive. The only ones that will make out in the law suits are the lawyers. If the CU had good legal counsel, they would not have offered something so abiguous in the first place. The media does have a part to play, exp. for those who can't afford legal representation to take on a bank or CU.

Anonymous | Jun 24, 2014 | Comment #17

Yeah this is not the type of case a lawyer will take on contingency. So without a "loser pays both attorneys" clause, you're looking at spending many times more than you can recover. Kudos to Mr Jordan for wrestling with the bigger guy and winning.

Anonymous | Jun 30, 2014 | Comment #20

Buying bonds and term deposits is a very bad idea. The entire over-indebted western world, including Europe, Canada and the USA, has enacted "bail-in" legislation. That means that, now, zombie banks will stay alive by wiping out bond-holders and high asset depositors. This is going to be very important legislation in America because of the vast number of bank failures we can expect once that finally happens.

Depositor money will to be used to bail out banks, instead of government revenues. The FDIC fund is highly leveraged. There is only about 25 billion in US Treasury bnks Based on some something like 100 to 1. There east9 $8 trillion in deposit liabilities secured by a fund that only has about $25 billion in it. Typically, Derivative counter-parties have preference over the FDIC over seizure of bank assets to pay off their claims, as per the US Bankruptcy Code. To make this story short, the FDIC will have no assets to sell upon the insolvency of a major bank

To pay off depositors, the US government will either be forced to print money again, collapsing the exchange value of the dollar, or it must not follow the current FDIC rules that govern the paying off of bank depositors. The government is will not have enough money to pay off all eligible deposits and will have to return ton the printing press to covertly default, and doing so will collapse the US dollar.

Anonymous | Jun 30, 2014 | Comment #21

So what are you doing instead of bonds and term deposits that you think will be safer?

paoli2 | Jun 30, 2014 | Comment #22

Build an underground steel shelter with lots of water, food, etc. and be prepared to fight off all the starving zombies in the streets trying to find people to rob for food and water etc.
Creeps!!! Is there NO Optimism left in the Universe? DA is beginning to read like Mad Magazine! Maybe I should go hide in my lovely coffin which is already chosen and paid for and maybe they will overlook me when they storm the streets for victims.

Anonymous | Jul 1, 2014 | Comment #23

watch out, the zombies will be stealing your coffin while your hidding in your shelter.

paoli2 | Jul 1, 2014 | Comment #24

No way!! I only go for the "top of the line" coffins! Must be "zombie" proof! Even tried it out for fit and comfort so no zombie is messing with my eternal rest.

Anonymous | Jul 1, 2014 | Comment #25

Deposits are already used to pay FDIC premiums, uninsured bonds are always a risk and term deposits provide a measure of safety required by a specific class of investor.

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