We are in the process of switching to new account (deposit side) software. Currently our CD’s ranging from 1yr to 5yr say, “If you withdraw any of the principal before the maturity date, we may impose a penalty of (One, Three, Six) Months interest on the amount withdrawn.” Depending on the CD, the potential penalties vary.


We are wanting to change this wording slightly to allow for one single TIS Disclosure for these particular CD’s that otherwise share all other “common denominators”. I was hoping to use the phrasing of, “If you withdraw any of the principal before the maturity date, we may impose a penalty of up to six Months interest on the amount withdrawn.”

Does anyone see any issues with doing this? I have reviewed the regulation but don't see where we have to specify the different penalties for each specific account type.

I see this out of the regulation but am unsure what, "conditions for its assessment" means.

(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.

You need to be clear. I don't believe your current disclosure is ["we may impose a penalty of (One, Three, Six) Months interest"] unless someone is circling one of those variables for the custom. \
Your new wording is fine. It clearly indicates the CD has a 6 month penalty.

I believe you're answering the "conditions" portion with your statement. Look at the sample wording in Appendix B-1 to Reg DD and you'll see:

(ii) Early Withdrawal Penalties

We [will/may] impose a penalty if you withdraw [any/all] of the [deposited funds/principal] before the maturity date. The fee imposed will equal ---- days/week[s]/month[s] of interest; or

We [will/may] impose a penalty of $---- if you withdraw [any/ all] of the [deposited funds/principal] before the maturity date.

If you withdraw some of your funds before maturity, the interest rate for the remaining funds in your account will be ----% with an annual percentage yield of ----%.

I think your wording is very similar to the 2nd example. However, why not just say it exactly like the 2nd example?

Whether someone gets a 1 year CD or a 5 year CD, are you saying that the TISA will state "up to six months interest" as a penalty? I so, personally, I don't think that's very clear, given that you really would only be imposing one months interest on a one year CD (I'm assuming).

All of the examples from David's post are exact numbers: the fee will "be equal to"... "penalty of ___ dollars".

If you want one uniform disclosure, why not just state "if your CD has a term of ___ years to ___ years, the fee imposed will equal one months interest. If your CD has a term of ___ years to ___ years, the fee imposed will equal three months interest..." etc.

1030.3(b) General. The disclosures shall reflect the terms of the legal obligation of the account agreement between the consumer and the depository institution.

When the penalty is one month or three months, telling them you may charge six - I just don't think that cuts it.

burke, you are exactly right about the disclosure saying "up to 6 months interest" in all the disclosures, whether a customer gets a 1 year CD or a 5 year. The individuals working on this software transition are wanting 1. Therefore, they felt using the words "up to" would cover it.

I do like your last example where it spells out each term with the number of months interest penalty for the different term types.

Dave, our disclosure don't state the following: ["we may impose a penalty of (One, Three, Six) Months interest"]. Depending on the CD term they say either One, Three, Six, etc...

Great. I was hoping you didn't state all 3.

Just say "We may impose a penalty if you withdraw any of the principal before the maturity date. The fee imposed will equal ___ months of interest." That's right from the model language.

David, that is where the problem is. Compliance1 is trying to come up with uniform TISA language for a uniform TISA disclosure that will cover all possible penalties, whether that's one, three, or six months interest, for all of their CD products.

We went through this when switching to a new forms vendor, and just set up multiple different TISA disclosures based on the term of the CD. The only thing that was different between the disclosure templates was the penalty. (Rate, exact term, dates, etc. populate from core when opening the CD.)

We also have to deal with this on CD renewals as our core does not produce a new TISA disclosure at renewal. Deposit Ops sends a uniform TISA disclosure with the renewal notices that would cover all CD types. In that disclosure, we include a table that shows all penalties and the associated term of the CD. (I have a feeling that there is a better way of doing this through existing functionality within either core or the forms vendor, but we've had bigger fish to fry on the credit side of the house for me to really dig in.)