Management is looking into making some changes to our Christmas Club accounts. The change would be as follows: any Christmas Club account that earns less than $5.00 interest (at the time the Christmas Club checks will be cut/mailed to the customers) would only be paid principal (in other words the account would not be paid interest if the interest earned is under $5.00). This would affect those customers who keep a very little balance in their account, as well as those customers who open an account or make a large deposit just prior to the check being cut (in either of these cases the interest earned could be less than $5.00).

If we decide to make this change are we obligated to provide advance notice to all Christmas Club accountholders? And are there any compliance issues we should be concerned about prior to making this change? Thanks.

Can anyone help me with this?

Any information/guidance would be appreciated.

Thanks.

Look at the commentary are 12 CFR 230.7(a)(2):

6. Club accounts. Institutions offering club accounts (such as a ``holiday'' or ``vacation'' club) cannot impose a minimum balance requirement for interest based on the total number or dollar amount of payments required under the club plan. For example, if a plan calls for $10 weekly payments for 50 weeks, the institution cannot set a $500 ``minimum balance'' and then pay interest only if the consumer has made all 50 payments.

Our club account is set up differently than the example in the commentary (12 CFR 230.7(a)(2)). Our plan does not call for a specific number of payments for X amount of weeks. Basically, you can open a club account at our bank with a minimum of $5.00 and you can make as many or as few deposits into the account as you want. We don't impose a minimum balance requirement for interest based on the total number or dollar amount of payments required under the plan (as a specific number/dollar amount of payments is not required). The minimum balance to earn interest is $5.00. Mgmt. wants to change this, so that if less than $5.00 interest is earned on the account, the interest is forfeited. I don't know whether or not this would make a difference in the answer to my initial question or not. Thanks.

It seems like it would just be easier for your bank to say, "Hey, we don't want the hassel of club accounts anymore, so we are discontinuing them."

Perhaps change your account parameters and structure and say "Minimum balance of 5.00 to open and maintain account, but interest accrues on balances of 500 or greater."

We have a savings account like this...100 to open, no minimum balance and no monthly fee, but interest only accures and compunds daily only when the daily balance is greater than 2500. Actually a pretty popular account since we pay in excess of 4% for balances over 2500.

Under Reg DD if interest is earned, it has to be paid - it is not discretionary at the whim of management. The only exception would be under conditions such as bbsgrant described or in relationship to account closure and accrued interest but interest that is not yet paid and it would have to be properly disclosed in your TISA disclosure.