How Can the Terms of Time Deposits be Changed?

Issue/Inquiry

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

Response Summary

The Bank can change the terms of a time deposit agreement and apply it 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 of the changes must be given, which will go into effect when the account is renewed. If the existing time deposit agreement permits the contemplated changes to be made by the Bank, Regulation DD will require advance notice to be given if the changes can reduce the annual percentage yield or adversely affect the consumer. Otherwise, the Bank and the depositor must enter into a modification or change-in-terms agreement in order to make changes to an existing time deposit account.

Response Detail

Changes to a time deposit agreement would go into effective for new customers who open accounts using that agreement. Whether changes can be made to existing time deposits and the manner in which changes could be made depends on several 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 have to provide timely disclosures of the changes that will go into effect when the deposit matures or is renewed.

For time deposit accounts with a maturity longer than one month that renew automatically at maturity, a depository institution must mail or deliver the disclosures at least 30 calendar days prior to 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 considered new account opening disclosures, inclusive of the date 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 must disclose that those rates have not yet been determined, the date when such 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 annual percentage yield for the new account if such are known (or that those rates have not yet been determined, the date when they will be determined, and a telephone number 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, a depository 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 prior to maturity of the existing account. 12 CFR 1030.5(c). This means that the institution would not have to give advance notice of the changes made to the account agreement, but simply provide the changes as part of the new account disclosures if the existing account is rolled over.

If the Bank wished 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 or change-in-terms agreement with the consumer. If the consumer did not wish to enter into such an agreement, then the changes could only be made when the account is renewed or rolled over, provided that the changes were disclosed in advance, in the case of time deposits with a maturity greater than one month which automatically renew.

However, if the time deposit agreement that is already in effect discloses that changes can be made prior to maturity, then the depository institution could make the changes in accordance with the terms of the agreement. In addition, if the changes affect the terms that were originally disclosed when the account was opened, the depository institution would have to give advance notice to the affected consumers if the change can reduce the annual percentage yield or adversely affect the consumer. The notice must 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 of action it must take.

This entry was posted on Monday, April 15th, 2019 at 6:00 am.