Topic: Certificates of Deposit (CDs)
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When converting a joint CD to a joint money market account, do we need to obtain signatures from both account holders in order to create a joint tenancy with a right of survivorship? If so, is there an exception to that rule when the conversion from a CD to a money market account occurred only because the original offering bank was purchased by another bank?
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Yes, both signatures are required in order to create a joint money market account with a right of survivorship. Under the Illinois Joint Tenancy Act, a joint deposit account with rights of survivorship requires a signed written agreement by all account owners. There is no exception to this rule for when accounts are created or…
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When two people jointly own a CD, do both of them need to sign the CD renewal?
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We believe it is permissible for one owner to sign the CD’s renewal, provided doing so would not be inconsistent with the terms of the original CD agreement or any collateral agreement you may have defining the scope of each owner’s authority.
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A customer had a two-year CD. At the end of the term, we provided a “prematurity notice” and a grace period for renewing. The customer then requested a renewal for a four-year term. Should we redisclose the account terms by providing new TISA disclosures? Currently, we provide a change in terms notice when a customer requests a change that highlights the original issue date and amount, the last renewal date, and the new interest rate, maturity date, term and amount.
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It is not necessary to provide a full set of new TISA disclosures, because your change in terms notice highlights the new maturity date. You are not required to provide a full set of new disclosures when a customer requests a change after you have provided a prematurity notice for the rollover CD, but you…
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If a customer is over 59½ years old but under 70½ years old, can we charge an early withdrawal penalty for a certificate of deposit (CD) in an individual retirement account (IRA)?
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Once seven days have passed after your customer first opens the IRA CD account, you may charge an early withdrawal penalty if permitted by your account agreement and disclosures. We are not aware of any IRS regulation that would prohibit you from charging an early withdrawal fee (after seven days have passed) when the CD…
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When we have a customer sign an indemnity bond for a lost CD, do we need to keep an original copy, or would an electronic version suffice?
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Disclaimer: The Electronic Commerce Security Act (ECSA) was repealed and replaced with the Uniform Electronic Transaction Act (UETA), effective June 25, 2021. Please note that this change may affect the continued accuracy of this guidance as it pertains to the ECSA. An electronic version of the indemnity bond should suffice. The general rule under Illinois law…
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Is it possible to make a secured loan using a CD held in an individual retirement account (IRA) as collateral?
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No, you may not use a CD held in an IRA as collateral for a loan. IRS Publication 590 notes that using an IRA as security for a loan is a prohibited transaction. For resources related to our guidance, please see: IRS Publication 590 (Prohibited Transactions for an IRA include “using it as security for…
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If we acquire commercial certificate of deposit (CD) accounts from another bank, can we terminate the CDs before their maturity dates? In the alternative, can we change the interest rates before they mature?
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Regulation DD’s notice requirements will not apply, since the CDs are not held by consumers. In the absence of any regulatory requirements, you must comply with the terms of the account agreements. A number of Illinois courts have held that the relationship between a bank and its depositor is created and regulated by the contract…
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We qualify for the alternative delivery method for our annual privacy notices. How should we notify CD and loan customers about the availability of the privacy notice, since we do not send those customers periodic statements or coupon books?
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For any customers who do not receive periodic statements or other notices from your institution at least annually, you must provide a full annual privacy notice once per year — you cannot rely on the alternative delivery method for those customers. The alternative delivery method requirements include a requirement to provide a “notice of availability”…
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Can we change the way we calculate our interest rate for our CDs by sending out change-in-terms notices? We are switching from compound interest to a simple interest calculation. Our CD agreements are silent on our interest calculation method, and our initial disclosures stated that we compound interest daily.
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We believe it would be highly problematic to change from a compound to a simple interest calculation without obtaining your customers’ consent. We recommend waiting until any CD matures before unilaterally changing the interest calculation method. We note that as part of your CD account-opening disclosures, Regulation DD requires the disclosure of “the frequency with…