I'm offering a more detailed response as there is a similar question in the "private" forum, but there's little point in answering it there as few will see it and it will not show up for most of those who might be searching for the information.
Regulation D allows for the waiver of early withdrawals from IRA deposits if the participant is over 59 1/2. It does not require a waiver, it simply allows it. The bank may refuse to allow penalty free waivers or choose any one of a wide array of circumstances where it will waive the penalty. The northern and southern most extremes are to waive the penalty on:
* any withdrawal after the individual reaches 59 1/2, or
* any withdrawal after the individual reaches 70 1/2 (the year in which a participant becomes responsible for beginning a systematic pattern of withdrawal from the IRA, specifically described as taking a "required distribution amount")
This is not a complete list. There are many other possibilities. To summarize: That which you are not required to do at all (waive penalties) you can do any way you wish.
When banks open an IRA the Internal Revenue Code requires them to distribute a "plain language disclosure" of the IRA's care, feeding and income tax ramifications. If your bank explained its conditions for waving early withdrawal penalties in that disclosure then you should consider it a contract with the participant. If the plain language disclsoure provides that you can unilaterally change the terms then you need to give notice of the change in your waiver practices as your plain language disclosure requires.
All of the above was true before the Truth in Savings Act, as implemented by Regulation DD, became law.
Per Regulation DD, a disclosure for a time deposit (including one held in an IRA) must include:
(ii) Early withdrawal penalties. A statement that a penalty will or may be imposed for early withdrawal, how it is calculated, and the conditions for its assessment.
Regulation DD does not require banks to disclose when that penalty would be waived. If a bank addressed penalty waivers in its plain language disclosure (or voluntarily in its TISA disclosure) then it is simply bound by what it said in that disclosure. If it did not, then the circumstances under which a waiver is allowed are a matter of bank policy or practice which, in my experience, may vary among branches, employees, or days of the week. Obviously, policy or practice can be changed without notice, but I suggest you keep in mind that some customers have been taking IRA withdrawals from time deposits for years and, if they have been penalty free, are probably under the impression that "it's against the law" to charge them a penalty.
* If I was going to change penalty free waivers on IRAs I would give notice to all affected parties, in writing, that it would take effect the following calendar year. I know most banks are not searching for deposits, but this is decidedly not the group of people you want to [censored] off if you would like to keep the core deposits you already have.
* Allowing one penalty free withdrawal per calendar year (of the RMD or a fixed amount, whichever is greater) for people over 70 1/2 allows them to remove the RMD which your bank knew very well they would have to do the day it opened the account. Allowing any additional waivers is accurately described above as "generous" and may be detrimental to your bank's best interests as well as common sense.
In this world you must be oh so smart or oh so pleasant. Well, for years I was smart. I recommend pleasant.