I was recently asked the following question:

Can we make an offer to break the term of a CD (ie. 5-10 year maturity CD at 5.00%) and extend them another 3 years past the current date of switch or maturity, essentially lowering their current rate now to extend to a (supposed) higher rate once they come due?

I understand that Reg DD does not prohibit a change prior to maturity and that 230.5(a) applies if the change becomes effective prior to maturity. However, it feels as if this could be a UDAAP issue. Granted, we would not be "forcing" the change in terms, only offering it. Is there anything that would prohibit this practice? Specifically, is there something I can cite to stop it? Our state law (367.393) only refers to renewal term and rate, basically referring to auto-renewal and notification. Any info would be appreciated!

There is nothing wrong in making any offer to any customer of the bank if the offer is fully disclosed and they enter into it willingly. How could that ever be deemed a UDAAP or illegal regardless of your State??

Thanks for the info. On a second note....if we offer this promo and then waive the early withdrawal penalty, what reason do we use from an audit perspective for the waiving of penalty? "Other, justifiable circumstance"? Would it be subject to criticism from a regulator?

The only early withdrawal penalties required on time deposits are the 7 day penalties as described in Regulation D. Other than that, the bank can do whatever it wants too.