CD Rates Summary July 17, 2018
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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.
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.
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.
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!
http://thefinancialbrand.com/4348/memeber-dividends-differentiate/
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.
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.
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.