Topic: Certificates of Deposit (CDs)
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We issued a certificate of deposit (CD) to two joint owners with a right of survivorship. One of the owners has died, and the surviving owner would like to cash in the CD but has questioned the early withdrawal penalty. Is there any guidance on whether banks can charge early withdrawal penalties in such cases, or is this a matter of bank discretion? We have decided to waive the early withdrawal penalty in cases where there is a single owner with a payable on death provision.
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We are not aware of any guidance on charging early withdrawal penalties after a joint owner of a CD has died and the surviving owner wishes to cash it in. Whether you waive an early withdrawal penalty in this situation is a matter of bank discretion. Early withdrawal penalties for CDs are required by Regulation…
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A business customer would like to open a jumbo certificate of deposit (CD) and take out a loan secured by the CD. The borrower has requested a lower interest rate on the loan, in exchange for accepting a lower interest rate on the CD. Is this arrangement permissible? We do not advertise such arrangements but would be willing to offer the same terms to other qualified borrowers.
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We believe this arrangement is likely permissible, but we recommend addressing the fair lending concerns that could be raised by making a special arrangement for one borrower. There are very few limitations on interest rates charged by banks under Illinois law, provided they are agreed to by your customers in your loan agreements. The Illinois…
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We are considering raising early withdrawal penalties on certificates of deposit (CDs) in order to discourage early withdrawals for new accounts. Does Illinois law limit the maximum early withdrawal penalty that we can charge for new CDs? If so, are there different limits for consumer and business accounts?
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No, we do not believe that Illinois law limits the maximum early withdrawal penalty that banks can charge consumers or businesses for new CDs. The Illinois Banking Act generally provides that “[t]he establishment of account service charges and the amounts of the charges not otherwise limited or prescribed by law is a business decision to…
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Are we required to pay accrued interest when a customer closes a deposit account? Are we required to do the same for a certificate of deposit (CD) redeemed prior to maturity?
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No, we do not believe you are required to pay accrued interest if a customer closes a deposit account or CD before the date on which the interest is credited — provided that you have properly disclosed that customers may forfeit accrued interest if they close the account before the interest is credited. Regulation DD’s…
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We have a consumer loan secured by a certificate of deposit (CD) from our bank. We provide this loan to customers who want to establish credit histories. The loan proceeds were used to open the CD securing the loan. We disclosed under Section 1026.18(m) of Regulation Z that the customer was giving a security interest in “the goods or property being purchased.” However, we believe that we should have documented this as taking an assignment of the CD instead, as we do not believe a CD is a consumer good. Did we disclose the security interest incorrectly?
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No, we do not believe you were incorrect in disclosing that the customer was giving a security interest in the goods or property being purchased when the proceeds of the consumer loan were used to purchase the CD securing the loan. For covered transactions other than mortgage loans, Section 1026.18(m) of Regulation Z requires the…
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A husband and wife opened twelve-month, single ownership, automatically renewing certificates of deposit (CDs) at our bank in November 2013. The husband and wife passed away in May and June of 2019. The couple owned a business, and these CDs were pledged as collateral on a loan, but the loan has had no activity on it. The executor has not done anything with these CDs and has not contacted us at all since the couple died. Would the CDs be considered dormant in 2023 and need to be turned over as unclaimed property?
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We believe that the CDs should have been reported as unclaimed property in 2021, since neither the executor nor any beneficiaries have indicated interest in the CDs after your customers died. Generally, an automatically renewable time deposit is presumed abandoned under the Illinois Revised Uniform Unclaimed Property Act (Illinois RUUPA) if it is unclaimed by…
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We have an automatically renewing certificate of deposit (CD) with a 30-month term. The CD was set to mature at the end of April in 2019, and it automatically renewed for another 30-month term. The customer’s last indication of interest was in mid-April of 2019. When would the CD be considered abandoned?
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If there has been no indication of interest since the CD’s first automatic renewal term, we believe the CD would be considered abandoned at the end of October 2024. The Illinois Revised Uniform Unclaimed Property Act (Illinois RUUPA) provides that an automatically renewable time deposit will be presumed abandoned “3 years after the date of…
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A deceased customer named their daughter as the payable on death (POD) beneficiary for two certificates of deposit (CDs). We have the daughter’s name, but not her contact information or social security number, and the CDs are continuing to earn interest. We have been cutting interest checks in the name of the deceased customer and holding them. Instead of cutting these checks, can we capitalize the interest on the CDs, and can we deposit the interest checks we have already issued into the principal balance of the CDs?
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No, we do not recommend capitalizing the interest on the CDs and unilaterally depositing the interest checks that have been issued into the principal balance of the CDs, unless the CDs’ account agreements expressly grant you this authority. If you have not been granted this authority, we believe you should continue holding the CDs and…
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We have an auto-renew certificate of deposit (CD) that we have identified as unclaimed property, but it will not mature until mid-2022. Should we submit a report once the CD matures in 2022 so that the owner does not miss out on interest? Should we submit it as a cashier’s check?
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Yes, we believe that you may wait before reporting and delivering the CD as unclaimed property until the next applicable reporting date after it matures in 2022. Under the Illinois Revised Uniform Unclaimed Property Act (Illinois RUUPA), an automatically-renewable CD would be presumed abandoned three years after the most recent indication of interest “following the…
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We have a four-year auto-renew certificate of deposit (CD) that opened in 2002. A beneficiary was added in 2017. Should we report the CD as unclaimed property based on the date of last contact in 2017, or should we wait until the start of a new initial term (in 2022)?
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We recommend delaying the reporting and delivery of the CD until the next reporting date after it matures in 2022, as permitted under the Illinois Revised Uniform Unclaimed Property Act (Illinois RUUPA). Under the Illinois RUUPA, an automatically-renewable CD is presumed abandoned three years after the most recent indication of interest “following the completion of…