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Federal Agencies Issue Guidance on Youth Savings Programs

March 2, 2015
Joseph D. Simon
Garden City

Federal banking agencies have issued guidance encouraging financial institutions to develop and implement programs to expand the financial capability of youth and build opportunities for financial inclusion for more families. The guidance also provides answers to frequently asked questions (“FAQs”) that typically arise with regard to the establishment of these programs, such as whether there are restrictions on opening accounts for minors, and whether branch applications are needed when partnering with schools to offer student accounts.

A summary of several of the key FAQs is set forth below.

Accounts for Minors

An issue that financial institutions face when deciding whether to offer youth accounts is whether the institution is legally permitted to offer such accounts. The guidance confirms that there is no federal law that prohibits minors from opening savings accounts, and the issue of having a deposit account relationship with a minor is governed by state contract law.

The guidance states that in general, minors are not considered to have the mental capacity to enter into a contract, including opening a deposit account. As a result, a contract with a minor is potentially “voidable” by the minor. This is generally the law in New York State, where a minor is considered a person who has not yet attained the age of 18. Some states specifically allow a minor to open an enforceable contract for a deposit account, but New York is not one of those states as of yet.

Community Reinvestment Act Consideration

The guidance states that banks and savings associations may receive Community Reinvestment Act (“CRA”) consideration if they provide youth savings and financial education programs targeted primarily to low- and moderate-income students. The guidance directs financial institutions to consult the interagency CRA guidance (available at http://www.ffiec.gov/cra/pdf/2010-4903.pdf) for examples of how financial institutions can determine whether community services are provided to low- and moderate-income individuals.

Branch Applications

The guidance describes the agency-specific conditions for when a financial institution’s youth savings program would not require a branch application.

FDIC-Supervised Institutions

FDIC regulations permit a state nonmember bank to provide banking services in schools without filing a branch application or obtaining prior approval from the FDIC if:

The guidance cautions that for state savings associations, the applicable state law and appropriate state supervisory authority determine if a branch application will be necessary.

FRB-Supervised Institutions

The Federal Reserve Board has not yet issued policies or regulations regarding branch applications and youth savings programs.

NCUA-Supervised Institutions

While the Federal Credit Union Act and the NCUA regulations do not provide for any branch application requirements for federal credit unions, the Federal Credit Union Act does provide that federal credit unions were organized for, among other things, promoting thrift among members. This provision is the basis for youth savings programs administered by federal credit unions. State-chartered credit unions should look to applicable state law and the appropriate state supervisory authority to determine branch application requirements.

OCC-Supervised Institutions

The OCC permits national banks to set up school-based youth savings programs, on the premises of, or at a facility used by, a school without submitting a branch application prior to setting up such program if the following conditions are met:

If these conditions are not met, the bank must submit a branch application to the OCC.

Federal savings associations are permitted to set up a school-based financial education program without submitting a branch application as long as the program meets the following criteria:

If these criteria are not met, the federal savings association must submit a branch application to the OCC.

Customer Identification Program Issues

With regard to Customer Identification Program (“CIP”) issues that arise when minors or their representatives open accounts, the guidance provides the following:

Additional Information

The complete guidance can be found online at https://www.fdic.gov/news/news/financial/2015/fil15011a.pdf. The guidance provides a list of comprehensive resources from various agencies that are relevant to the establishment of youth savings programs.

If you have any questions regarding this guidance or youth savings programs in general, please feel free to contact Joseph D. Simon at (516) 357-3710 or via email at jsimon@cullenanddykman.com, Kevin Patterson at (516) 296-9196 or via email at kpatterson@cullenanddykman.com, or Elizabeth A. Murphy at (516) 296-9154 or via email at emurphy@cullenanddykman.com.