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  4. Early Withdrawal Penalty At American 1 Credit Union - Can Anyone Explain Better Than The Credit Union?

Early Withdrawal Penalty At American 1 Credit Union - Can Anyone Explain Better Than The Credit Union?

chaser14
  |     |   61 posts since 2019

I have a $235,000. 5 year CD at American 1 Credit Union earning 2% that matures 6-5-25. This CD’s interest is not compounded and the interest transfers monthly to a saving a savings account currently earning .47%. I then transfer that monthly interest to a higher paying account via ACH. 

My plan was to cash in the CD early and take the EWP which “sounded like” it was 90 days dividends. When I called to inquire I was told my penalty would be a whopping $9,000. The rep then read to me from their Truth-In-Savings Disclosure which I did verify on their website which states “ The penalty we may impose will equal 90 days dividends on the amount withdrawn plus the amount of dividends earned on the amount withdrawn in excess of the dividends that would have been earned at the savings/share account rate.

Has anyone ever heard of anything like this?

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1


Answers
sharon907
  |     |   36 posts since 2022
For anyone curious, here is a link to the disclosure statement.

The penalty we may impose will equal 90 days dividends on the amount withdrawn plus the amount of dividends earned on the amount withdrawn in excess of the amount of dividends that would have been earned at the Savings/Share account rate.

https://www.american1cu.org/privacy-and-disclosures

It sounds like the penalty = 90 days + the entirety of the difference between (CD APY - Savings Account APY).

No, I have never heard of that. The 90 days (or 180 or 360 days) is normal, the additional is not at all normal.

The IRA penalty is a flat 90 days worth of dividends.

For your recourse, first check the disclosure statement you received when you became a member or bought the certificate, Perhaps it has changed recently, and your actual penalty is less.

Second, I would contact the regulator, just to ask and complain. The penalty is unusual and seems onerous, to me.

Third, contact some media.  If you and the CU are local, contact local media.  This is weird penalty.
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alan1
  |     |   877 posts since 2015
chaser14 -- I have "heard of anything like this".
The late Montauk Credit Union had a similar penalty. And I seem to recall (not certain) that the late Melrose Credit Union had a similar penalty.

As to the legal interpretation of the penalty clause presented by the Dean of the Choice School of Law, I will refrain from commenting. (I happen to be a retired attorney. Unlike the Dean, I claim no expertise in the field of banking law.)
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Choice
  |     |   937 posts since 2020
I’ve heard of it and seen it…let me quote, “ Wording from the web site on EWP. Appears you pay 90 days of interest plus the interest on the amount withdrawn.

"The penalty we may impose will equal 90 days dividends on the amount withdrawn plus the amount of dividends earned on the amount withdrawn in excess of the amount of dividends that would have been earned at the Savings/Share account rate."

Above is from December 1, 2019 post on DA on this CU! Another example for all of us to read and post reviews.  Consequently, it doesn’t say “shall” nor does it say how it determines how it may exercise discretion…ergo, it’s too vague to be enforced.  Finally, the apy should have been correctly stated to reflect any so-called penalty 
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w00d00w
  |     |   360 posts since 2012
i'm no expert at legalese, but when it says "may impose," it sure seems like it gives the bank/CU that option. could consider waiting a bit longer and hope the share savings rate is raised which would decrease the penalty.
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Choice
  |     |   937 posts since 2020
Doesn't say "in its absolute discretion" in order to be a safe harbor. The criteria must otherwise be stated. CUs like people who interpret documents for their benefit. Further would one expect the CU to always impose the penalty...how is it fair and reflective of their fiduciary duties? Ask the CU, I say! If it does it on an irregular basis then "may" be right word but not in conformity with their obligations...on the other hand if they do it always, then it should say "shall."  :)
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sharon907
  |     |   36 posts since 2022
Choice, were you ever actually educated / employed as a lawyer, investment advisor, company executive? Or do you just play one on Deposit Accounts?

Because about 90% of your quips, cannot be interpreted in any way. And often when they are interpreted, they still don't make sense.

For instance, here you opine. "Finally, the apy should have been correctly stated to reflect any so-called penalty "

Do you know why you make this bizarre claim? Because I have never seen a reported APY that first subtracts the potential penalty. If you know of any banks or credit unions that report their APY by first subtracting the "so-called penalty," could you kindly cite the actual names of the companies, etc.

In this case, it would lower the APY to about ZERO POINT ZERO %.

How would that be informative?
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Choice
  |     |   937 posts since 2020
If chaser didn’t want to get to the promised land he would not have posted. I think the forfeiture argument is a good one too! And zero apy up to maturity while being confronted with a forfeiture for 5 years? Enjoy or move on. :)
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2
greenback
  |     |   55 posts since 2022
CUs are non-profit organization and supposed to pass the profit to its members
(a.k.a. share holder / owner) in the form of dividends. So they should be giving significantly higher interest rates than the banks. If we compare the rates today on DA , there are hardly any established major CUs on the top of the list. Banks are offering better rates.
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greenback
  |     |   55 posts since 2022
This surely sounds vague but unfortunately it is only for the members and not for the CU. The penalty clause generally states --

"
Early Withdrawal Penalty :
We may impose a penalty if you withdraw any of the principal before the maturity date.

Amount of Penalty :
For Share Certificates of 6 Months and 11 Months the amount of the early withdrawal penalty for your accounts is no dividends for the first 90 days. For Share Certificates of 12 Months thru 60 Months, the amount of the early withdrawal penalty for your accounts is no dividends for the first 180 days.

How the Penalty Works :
The penalty is calculated as a forfeiture of part of the dividends that have been or would be earned on the account. It applies whether or not the dividends have been earned. In other words, if the account has not yet earned enough dividends or if the dividends has already been paid, the penalty will be deducted from the principal.
"
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IGR
  |     |   580 posts since 2020
That is bizarre!
"calculated as a forfeiture"??? There are ancient Greek and Egyptians and there are know calculation methods as addition subtraction division and multiplication.
Modern Disclosures explain calculation as a forfeiture!
" forfeiture of part of the dividends that have been or would be earned on the account"???
There is Einstein and there is Relativity.
Modern Disclosures explain Relativity in "part of"???
Just for the kick of it I would tell CU to calculate the Interest on the funds that could be Deposited on the account before deduction of the Interest from Would Be Principal.
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