Marketing would like to offer a two different 7-month CDs. The one CD will be at say 3.50%. No problem. There is nothing unique about this one.

The other 7-month CD will pay 4.50APY, but you are required to open a DDA with a direct deposit sometime during the 7-month period. The CD is written at 4.50 APY with the presumption that you either just opened or will open the DDA with direct deposit during the 7-month period.

Now this is where it gets tricky. If, during the 7-month period you do not open a DDA with the direct deposit the maketing gods want to charge a $100 "fee" if the CD is between $25M and $50M and a $50 "fee" if the CD is between $5M and $25M. The maximum that can be placed in this CD is $50M and the minimum is $5M. It will be charged the night before the CD matures.

My questions are as follows:
1. Is it ok to charge this fee if it is properly disclosed?
2. Speaking of disclosure, I'm looking at our TISA and I can't see a great place to put this fee disclosure? There is a spot for "additional terms", should it go there?
3. With newspaper ad, do we need to disclosure the 2 different fee amounts, the conditions that cause them or can we just disclose "fees may reduce earnings on account" and let the TISA descibe the particulars.


Thanks for any responses. I'd especially love to hear from others that have tried this and were they able to retain their compliance jobs............

We may have to work through this one.

First, I don't see a tying problem under federal laws. So I think you can do anything you can contract for.

Second, it is a penalty fee and would need to be disclosed as such. I assume if the CD is cashed in early, they would face the normal penalty PLUS this if a DDA w/DD wasn't opened? And the DDA need only receive one DD to have met this requirement or do you just need to see that DD was requested to go to a DDA established with you? That account could be opened and closed within the term of the CD. Tracking these which are not done at the time of the CD may be problematic.

Andy,

As always, thank you, but one last one....... see below.

1. It is correct that this fee would be added to the normal CD penalty for early withdrawal.
2. It was helpful that you see this as a penalty and I like the idea of wedging it into that section on the TISA.
3. I will leave it to management to determine if they will accept a "request for the DD" as fulfilling the account requirements and not assess the penalty.
4. I will leave it to management to figure out how to track who's ok and who is not!
5. I've felt from the beginning this was "do able" I just wasn't sure how.

What about the advertising issues? Do you believe these account fees need to be spelled out in the ad or is "fees may reduce earning on account" sufficient and let the TISA give them the bad news about the extra fees........?

First, I haven't researched this. That is why I said we'd have to work through it.

1. It is correct that this fee would be added to the normal CD penalty for early withdrawal.
_ I don't think so. It would be a separate penalty listed by the fact that you are requiring a DDA with DD, and that they acknowledge this requirement.

2. It was helpful that you see this as a penalty and I like the idea of wedging it into that section on the TISA.
_ I would classify it as a penalty based on their agreement to open the new DDA w/DD.

3. I will leave it to management to determine if they will accept a "request for the DD" as fulfilling the account requirements and not assess the penalty.
_ If you remind the customer of this requirement and you do it 2 weeks in advance, they may not have time to get it done and the penalty would leave a bad taste in their mouth.

Andy,

What are your first thoughts (prior to research) on the advertising requirements?

I'm sure this will be a shock to you, but I am being "encouraged" to come up with the TISA and the advertising disclosure as soon as possible (remember it's the marketing department!- ha, ha)

I'd say it is not a bonus and is not triggered specifically. You are paying a higher rate of interest and that is not a bonus. You will already disclose that fees may effect earnings. In this environment of unfair or deceptive advertising I would footnote that this rate is dependent on a DDA w/DD and that a penalty of $100 will be assessed if this is not in place with the first deposit received prior to maturity of the CD.

Remember though, none of what I am suggesting is legal advice and I won't be defending what you do and don't do to your boss, board or examiner.

Thanks again Andy. I know I am basically alone on this one and I promise not to "drop your name OR good 'ol BOL"