We force closed one of our CD accounts due to a suspicious transaction. So the account is closed earlier than original maturity date. In this case, are we allowed to waive an early withdrawal penalty? Are we not violating Reg D since it was a bank that force closed? Thanks.

Under what contract provision did you force close the CD? Do you reserve that right in your contract. Are you actually going to accuse the customer of conducting suspicious activity. I think you might have more issues with this action then worrying about whether you should or should not apply a penalty. I assume this action was taken under the adivce of counsel?

Actually, it was a decision based on BSA Officer. Once a suspicious activities continue to arise, BSA Officer recommends to close the account. "Account Termination" is fully disclosed in our Deposit Terms and Agreement where we hand them at the account opening. Thanks.

So your CDs are not term deposits, they are callable CDs? Interesting - and very rare. You will want to make sure you are properly classifying these in your call report.

One reason for the questions is that CD funds are typically not high risk, and when the account matures you can always get rid of it. That way you don't have to go through the hassle of waiving a penalty or telegraphing your discomfort level to the depositor.