Regulation DD and Changing the Terms of Time Deposits

Issue/Inquiry

The Bank is inquiring whether changes in the terms of the time deposit agreement would apply to existing time deposits or only new time deposits. Would the Bank need to send a new disclosure to customers holding existing time deposits?

Response Summary

Changes to the time deposit agreement would apply to new accounts being opened or rolled over using that agreement. Regulation DD, however, does not contemplate a financial institution making unilateral changes to existing time deposits. For time deposits that automatically renew, advance notice must be given of the changes that will go into effect when the account is renewed. Otherwise, the Bank and the depositor would have to enter into a modification or change-in-terms agreement account to make changes to an existing time deposit account. If the existing time deposit agreement permits the contemplated changes to be made by the Bank, Regulation DD requires that advance notice be given if the changes will reduce the annual percentage yield or adversely affect the consumer.

Response Detail

Changes to the time deposit agreement would be effective for new customers opening accounts that use such agreement. Whether changes can be made to existing time deposits and how will depend on several different factors.

Regulation DD does not contemplate unilateral changes being made to time deposits. If the existing agreement does not provide for a change in terms prior to maturity, the Bank will need to provide disclosures of changes that will go into effect when the deposit is renewed.

For time accounts with a maturity longer than one month that renew automatically at maturity, institutions must mail or deliver the disclosures at least 30 calendar days before maturity. Alternatively, the disclosures may be mailed or delivered at least 20 calendar days before the end of the grace period on the existing account, provided a grace period of at least five calendar days is allowed. 12 CFR §1030.5(b)

For time deposits with maturities longer than one year, the disclosures would be new account opening disclosures along with the date that the existing account matures. If the interest rate and annual percentage yield that will be paid for the new account are unknown when disclosures are provided, the institution shall state that those rates have not yet been determined, the date when they will be determined, and a telephone number that consumers may call to obtain the interest rate and the annual percentage yield that will be paid for the new account. 12 CFR §1030.5(b)(1)

• If the maturity is one year or less but longer than one month, the institution must either provide new account opening disclosures or disclose the following:
• The date the existing account matures and the new maturity date if the account is renewed
• The interest rate and the annual percentage yield for the new account if they are known (or that those rates have not yet been determined, the date when they will be determined, and a telephone number that the consumer may call to obtain the interest rate and the annual percentage yield that will be paid for the new account)

Any difference in the terms of the new account as compared to the terms required to be disclosed for the existing account. 12 CFR §1030.5(b)(2)

For time accounts with a maturity longer than one year that do not renew automatically at maturity, an institution must disclose to consumers the maturity date and whether interest will be paid after maturity. The disclosures shall be mailed or delivered at least 10 calendar days before maturity of the existing account. 12 CFR §1030.5(c). This means that the institution would not be required to give advance notice of the changes made to the account agreement, but simply provide them as part of the new account disclosures if the existing account is rolled over.

If the Bank chose to make the changes prior to maturity and the agreement did not provide for a change in terms, it could do so only by entering into a modification agreement with the consumer. In the case of time deposits with a maturity greater than one month, which automatically renew, if the consumer did not wish to enter into a modification agreement, then the changes could be made only when the account is renewed or rolled over, provided that the changes were disclosed in advance. If the time deposit agreement already in effect discloses that changes can be made prior to maturity, however, the depository institution could make the changes in accordance with the terms of the agreement. In addition, if the changes affected terms originally disclosed when the account was opened, the depository institution would have to give advance notice to affected consumers if the change may reduce the annual percentage yield or adversely affect the consumer. The notice should include the effective date of the change and be mailed or delivered at least 30 calendar days before the effective date of the change. 12 CFR §1030.5(a)(1)

The Bank will have to examine its existing agreements to determine the course it must take.

This entry was posted on Monday, June 26th, 2017 at 1:34 pm.