Judith Wolff felt like the rug had been pulled out from under her by Centennial Bank, the Arkansas-based company that acquired Old Southern Bank of Orlando after its recent failure.
The 80-year-old retiree asked if Centennial was honoring the 4.7 percent interest rate Old Southern had given her on a two-year certificate of deposit she bought in September 2008, when the ill-fated community bank was still in good shape.
The answer: no. Centennial said it couldn't afford to pay such a high interest rate for the six months left on Wolff's CD. She was welcome to buy a new CD — one earning 1.3 percent a year. But, by her count, that would have cost her about $2,000 in lost interest.
"That hurts a lot for someone living on a fixed income. It really shocked me," the longtime Orlando resident said this week. "I mean, I thought when you have a CD, it's just like a contract. And for them to break it, well, that seems to me to be just wrong."
Wolff was particularly incensed because Centennial is sitting on $50 million from the federal government's Troubled Asset Relief Program.
"Here they're getting this government TARP money," she said, "while we're the little people who end up losing out."
The interest-rate controversy is the first disruption in an otherwise smooth transition for Centennial, which made its Central Florida debut about two weeks ago when it acquired the deposits and assets of Old Southern, the first Orlando-based community bank to fail in nearly 20 years.
Centennial officials acknowledge that as many as 10 percent of their new customers are affected by the decision to not honor Old Southern's CD rates. They said the choice was clear for the bank, because Old Southern's savings rates were too high for terms that were too long for too many customers.
"There was a period a couple of years ago when rates in the Orlando market were extremely high, driven by Washington Mutual, Wachovia and others," spokesman Bob Garrison said Wednesday. "Old Southern put some CDs on its books then that were in the 4.5 percent range. But today's market has changed dramatically, and it's just not prudent for Centennial to sustain such rates."
Most banks honor customers' interest rates when they take over a failed institution, said Kenneth H. Thomas, a Miami-based author and banking consultant who was sharply critical of Centennial's action.
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