Can a bank waive an early withdrawal penalty on a CD for an insider? This is not a normal practice for any customers. Is this a Reg O violation? We also have a reduced fee for employees for wire transfers – can we waive that for a bank insider?
Waiving these types of fees is not prohibited by Reg O (which discusses not waiving fees for overdrafts in 12 CFR 215.4) but it's just not a best practice to waive fees for bank insiders that you wouldn't waive for your employees or customers as such preferential treatment can be a Regulation O red flag. But, keep in mind, the six day rule for time deposits.
(c)(1) Time deposit means:
(i) A deposit that the depositor does not have a right and is not permitted to make withdrawals from within six days after the date of deposit unless the deposit is subject to an early withdrawal penalty of at least seven days' simple interest on amounts withdrawn within the first six days after deposit. A time deposit from which partial early withdrawals are permitted must impose additional early withdrawal penalties of at least seven days' simple interest on amounts withdrawn within six days after each partial withdrawal. If such additional early withdrawal penalties are not imposed, the account ceases to be a time deposit. The account may become a savings deposit if it meets the requirements for a saving deposit; otherwise it becomes a transaction account.
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