Topic: Certificates of Deposit (CDs)
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We were recently told that the Customer Due Diligence (CDD) rule requires us to obtain beneficial ownership certification when a legal entity customer’s certificate of deposit or loan is renewed, even when there is no change to account. Is that true? Is there any chance that this requirement may be challenged in the future?
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Yes, until FinCEN issues clarifying guidance on this point, CD and loan renewals should be considered “new accounts” under the CDD rule for the purpose of obtaining beneficial ownership certifications. The CDD rule’s identification and certification requirements regarding beneficial ownership apply each time a “new account” is opened for a legal entity (unless the customer…
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An individual signed a security agreement pledging his certificate of deposit (CD) as collateral for his niece’s loan, which is now 45 days delinquent. Are there timing requirements before we can setoff the CD for the overdue loan? Do we have to notify the individual before we setoff his CD? Would it violate any privacy rules to send such a notification?
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We are not aware of any timing or notice requirements when exercising a right of setoff, but we recommend reviewing your loan agreement and security agreement for any contractual requirements with respect to timing and notice. In addition, we do not believe that notifying the uncle of the loan delinquency and impending setoff would violate…
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Under the new Illinois unclaimed property law, we understand that automatically renewing certificates of deposit (CDs) may become unclaimed property. Are we required to send letters and obtain written consents “at or about the time of the renewal” for these accounts? Such a process would be costly for our bank.
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No, the new Illinois Revised Uniform Unclaimed Property Act (Illinois RUUPA) does not require a bank to send letters or obtain written consents from CD owners. The Illinois RUUPA does provide that automatically renewable accounts will not be considered unclaimed if “the apparent owner consented in a record on file with the holder to renewal…
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Under the new Illinois Revised Unclaimed Property Act (Illinois RUUPA), if an account owner of an automatically renewable certificate of deposit (CD) has other accounts at the bank, do we need to establish customer contact at the time of renewal? Is there a onetime consent form that can be signed at the time of account opening so the bank does not have to establish customer contact at the time of each renewal?
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No, the Illinois RUUPA does not require a bank to establish customer contact at the time of renewal. To prevent an automatically renewing CD from becoming unclaimed, the owner also can indicate an interest in the account, which prevents the presumed abandonment period from running. As your question suggests, valid indications of interest include activities…
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Under the new unclaimed property law, if a customer is transferring interest accruing on a certificate of deposit (CD) to another account at our bank, will that be considered an indication of interest? If we pay interest on the CD in the form of a check and the customer cashes that check, is that an indication of interest? If the CD owner has other active accounts with our bank with the same mailing address, is that an indication of interest? In other words, is it correct to say that the only CDs we should be monitoring are those where the owner has no other accounts with us and which have compounding interest?
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The answer to your first three questions is yes — all of those activities constitute indications of interest in a CD that would prevent the presumed abandonment period from running. The Illinois Revised Uniform Unclaimed Property Act (Illinois RUUPA) would treat the transfer of accrued interest from a CD account as an indication of interest…
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Are we required to include the FDIC logo and advertising statement on a certificate of deposit (CD) prematurity notice?
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No, we do not believe that you must include the FDIC logo on CD maturity notices, but we recommend reviewing the prematurity notices to ensure that they could not be viewed as advertisements for your bank. The FDIC’s Advertisement of Membership rule requires banks to include the “Member FDIC” or “Member of FDIC” statement in…
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Most of our branches are located in Illinois, but one branch is located in another state. Can we offer a certificate of deposit (CD) promotion just at the out-of-state branch? We would advertise the promotion on lobby signs only in that branch. Also, the promotional terms of the CD would be included in the rate sheet for just that branch.
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Yes, we believe that your bank may offer a promotional CD only at your out-of-state branch. We should note that, in general, any promotion that singles out a group of customers creates some potential for fair lending concerns. Although a customer base is not a protected class, a promotion offered only to customers of a…
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We have a customer who would like to name a trust as the payable on death (POD) beneficiary on her individual certificate of deposit (CD). Does Illinois law allow this?
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Yes, a trust may be added as a beneficiary to a CD account. Under Illinois law, an account becomes a “payable on death” account when the accountholder signs an agreement providing that on the accountholder’s death, the account will be paid to or held by a designated beneficiary. The law defines the term “account” to…
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If a customer has money invested in a funeral trust (with the funds invested in a certificate of deposit) and wants to cash it in, can we assess an early withdrawal penalty? The trust beneficiary is still alive, and it is not our practice to waive early withdrawal penalties unless the owner has died. The funeral home that owns the account is saying that we cannot assess a penalty. The CD states on its face that there will be a penalty for early withdrawal, along with the amount of the penalty.
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We believe you may assess an early withdrawal penalty for the certificate of deposit (CD) held for the funeral trust, because the penalty is one of the terms of the CD account. The provisions in the Illinois Funeral or Burial Funds Act (which governs both the funeral home and funeral trust beneficiaries) on which the…
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When we issue a certificate of deposit (CD), we include the Truth in Savings Act (TISA) disclosures and the terms of the account agreement on the CD, which the customer signs. After a CD matures, some customers call to request a new CD with a longer or shorter term. In these cases, we mail the customer a new CD that contains the new disclosures and the new account terms, but we do not obtain their signature. Our auditors say a signature is required on the new CD. Is that correct?
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We are not aware of any requirement in the Truth in Savings Act or otherwise mandating that a customer sign a CD. However, we do recommend requiring the customer to sign a new account agreement when switching to a new CD account that has a different term. If your account agreement is included on your…