clause in contracts, loan agreements, and other obligations allowing a financial institution to assess penalties for early withdrawal from a savings account, late payments on an installment loan, or breach of contract. Since interest rate ceilings were lifted in March 1986, the Federal Reserve Board has eliminated the requirement under Regulation Q that banks impose mandatory penalties on early withdrawals from savings accounts; however, a bank still has the option of charging a penalty if a depositor fails to give advance notice of withdrawal, usually seven days in advance, before withdrawing funds from an interest earning deposit account.
clause found in contracts, borrowing agreements, and savings instruments providing for penalties in the event a contract is not kept, a loan payment is late, or a withdrawal is made prematurely.
