We would like to revise the penalties on our certificates of deposit (CDs) that automatically renew. The increased penalty schedule will not take effect until after the CDs renew. Do we need to provide 30 days’ notice to our CD customers before implementing the increased penalties? As part of a promotion, we are also planning to offer a brand new type of CD that will have different penalties than our existing CDs. Do we need to provide any advance notice about that? The new CD product doesn’t have any customers yet.

We believe you should include the increased penalty schedule in your prematurity notice, which generally must be sent at least 30 calendar days before the maturity of the existing CD accounts. However, we agree that you do not need to provide advance notice regarding the new type of CD accounts, because no customers have opened those accounts.

Regulation DD requires two types of advance notices: one for changes in account terms (“change-in-terms notices”), and another for changes that occur after an account matures (“prematurity notices”). In this case, where the change will not become effective until the CD account has matured, the prematurity notice requirements, not the change-in-terms notice requirements, would apply.

For CDs with maturities longer than one year that renew automatically, prematurity notices generally must be sent at least 30 calendar days before maturity and must consist of: (1) full account opening disclosures and (2) the maturity date of the existing account. However, there is no requirement to highlight new terms — such as an increased penalty schedule — in the account opening disclosures.

For CDs with maturities of one year or less that renew automatically, whether you highlight new terms depends on what type of disclosure you provide, since the rule provides two options: either (1) full account opening disclosures or (2) a shorter notice with three specified disclosures — (a) maturity dates for the existing account and the new account, (b) the interest rate and APY (if known), and (c) any differences in terms between the accounts.

For CDs with maturities of one month or less, you do not need to provide prematurity notices or highlight new terms.

For resources related to our guidance, please see:

Regulation DD, 12 CFR 1030.5(b)(1) (“If the maturity is longer than one year, the institution shall provide account disclosures set forth in § 1030.4(b) of this part for the new account, along with the date the existing account matures.”)
Official Interpretations, 12 CFR 1030.5, Paragraph 5(b)(1), Comment 1 (“Institutions need not highlight terms that changed since the last account disclosures were provided” for accounts with maturities longer than one year.)
Regulation DD, 12 CFR 1030.5(b) (“For time accounts with a maturity longer than one month that renew automatically at maturity, institutions shall provide the disclosures described below before maturity. The disclosures shall be mailed or delivered at least 30 calendar days before maturity of the existing account. Alternatively, the disclosures may be mailed or delivered at least 20 calendar days before the end of the grace period on the existing account, provided a grace period of at least five calendar days is allowed.”)
Regulation DD, 12 CFR 1030.5(b)(2) (“If the maturity is one year or less but longer than one month, the institution shall either . . . Provide disclosures as set forth in paragraph (b)(1) of this section; or Disclose to the consumer . . . The date the existing account matures and the new maturity date if the account is renewed . . . The interest rate and the annual percentage yield for the new account if they are known . . . and Any difference in the terms of the new account as compared to the terms required to be disclosed under § 1030.4(b) of this part for the existing account . . . .”).”)
Regulation DD, 12 CFR 1030.5(a)(2)(iii) (“No notice under this section is required for . . . Changes in any term for time accounts with maturities of one month or less.”)