We had a CD product with a rate tied to "prime less 2%". As these older CDs have matured we have re-written at a lower rate. In order to pay lower rates on some of these older CDsthat are still on our books,can we give customers 30 days notice and lower the rate to "prime"? I was unsure if on a variable CD we can change rate at any time especially since we disclosed a variable tied to prime minus 2%. Thank you!

I think if you changed your index from "prime minus 2" to "prime" your customers would be quite pleased. However, I don't think that's what you meant to say; your desire is to change the index to the customer's detriment; e.g. "prime minus 3."

There have been a number of recent discussions about raising early withdrawal penalties during the life of a time deposit. My observation has been to the effect that it's an unfair and deceptive practice on its face. My reaction here is the same, but would be a bit stronger.

Regulation DD might not interfere with your desires; i.e. you might be able to comply with the regulation in disclosing the change. Your concern would be with state laws that would take a dim view of your unilaterally changing the terms of the contract in an effort to deny the customer the benefit of the bargain. The label used by your attorney general's office would probably be "bait and switch."

P.S. If you work for my Mom's bank, plan for a class action suit.

Please clarify if these are:

1)CDs whos rate paid in any given time period is "prime - 2%" for that time period. Thus, if this month, the prime is 4%, you pay 2%, but next month if prime is 4.25%, then the CD receives 2.25% for that month.
OR
2) CDs whose interest rate is fixed over the term of the CD, but had an initial rate of 2% less than prime at time of opening

If the answer is 1, then the customer would benefit from having their rate calculated at prime since it would raise the rate.

If the answer is 2, then I agree with Ken. Get your legal counsel ready because you'll need them.