I. INTRODUCTION
Federal banking agencies have issued a guidance regarding youth savings programs. The purpose of the guidance is to encourage 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 addresses frequently asked questions that may arise as financial institutions collaborate with schools, local and state governments, non-profits, or corporate entities to facilitate youth savings and financial education programs.
II. BACKGROUND
Throughout the country, various financial institutions collaborate with elementary, middle, and high school administrators, and, in some cases, with government, non-profit, or private entity partners to administer youth savings and financial education programs. The youth savings programs are often structured as in-school bank programs that offer students basic savings accounts.
Youth savings programs are generally linked to a diverse array of financial education efforts, including personal financial management, banking operations, or both. They are intended to help students understand the value of saving for the future by opening and managing savings accounts. These savings accounts generally have very low minimum balance requirements and low or no monthly maintenance fees. Material account terms and conditions are also explained in an age-appropriate manner.
Financial institutions and others involved with youth savings programs indicate that there is some uncertainty about several legal and regulatory considerations relating to these programs and that this uncertainty may cause some institutions to be reluctant to develop youth savings initiatives. The guidance provides answers to common questions received regarding youth savings programs.
III. BANKING ACTIVITY QUESTIONS
1. Are there restrictions on minors opening savings accounts? How old must a person be to open a savings account without a parent or guardian serving as the custodian or coowner on the account?
No federal law prohibits minors from opening savings accounts. Rather, a deposit account relationship is based on a contract governed by state law (See Neb.Rev.Stat. § 8-135). States also have different legal definitions of “minor” (See Neb.Rev.Stat. § 43-2101).
Whether it is legally permissible for an institution to open an account for a minor without requiring a responsible adult to be the custodian or co-owner is a determination that a financial institution should make in consultation with legal counsel.
2. Can a minor with a custodial account be issued an automated teller machine (ATM) or debit card?
The Uniform Transfers to Minors Act or Uniform Gifts to Minors Act of each state governs custodial accounts for minors. As a general matter for custodial accounts, a custodian manages the funds in the account on behalf of a minor, meaning the minor would not be able to withdraw funds without the custodian’s approval. Therefore, a minor with a custodial account should not be provided with an ATM or debit card that permits withdrawals.
3. Do consumer protection laws and regulations apply to accounts held by or for the benefit of minors?
As with other deposit accounts, various federal and state consumer financial protection laws and regulations apply to youth savings accounts. Applicable federal consumer financial protection laws and regulations include, but are not limited to, the Children’s Online Privacy Protection Act (Children’s Online Privacy Protection Rule), the Electronic Fund Transfer Act (Regulation E), the Expedited Funds Availability Act (Regulation CC), the Truth in Savings Act (Regulation DD), and prohibitions against unfair or deceptive acts or practices.
For example, the Truth in Savings Act (Regulation DD) requires financial institutions to comply with certain requirements when advertising deposit accounts, provide consumer account holders with particular written information about account terms, provide certain fee and other information in periodic statements sent to consumers, and use specific methods to determine the account balance upon which interest is calculated.
4. Can banks and savings associations receive consideration under the Community Reinvestment Act (CRA) for developing and implementing youth savings programs?
Banks and savings associations may receive CRA consideration if they provide youth savings and financial education programs targeted primarily to low- and moderate income students. The CRA’s definition of “community development” includes “community services targeted to low- or moderate-income individuals.” To the extent that a financial institution’s youth savings program has a primary purpose of community development, the program will receive CRA consideration as a community development service. In addition, the interagency CRA guidance provides examples of community development services that include establishing school savings programs or developing or teaching financial education or literacy curricula for low- or moderate-income individuals. Financial institutions are also reminded that the interagency CRA guidance provides examples illustrating how financial institutions can determine whether community services are provided to low- and moderate-income individuals. One such example is when a community service is provided to students or their families from a school at which the majority of students qualify for free or reduced-price meals under the U.S. Department of Agriculture’s National School Lunch Program.
5. Is a financial institution required to file a branch application when it partners with a school to offer a youth savings program?
Requirements for financial institutions to file a branch application in connection with a youth savings program vary by regulatory agency. Generally, a branch application might not be required if the primary purpose of the youth savings program is financial education designed to teach students the principles of personal financial management, banking operations, and saving for the future, and the program is not designed for the purpose of profit-making. Agency-specific requirements are summarized below, and financial institutions participating in such programs should contact their respective regulators to determine whether such activity requires a branch application.
FDIC-Supervised Institutions
FDIC regulations permit a state nonmember bank to provide banking services (such as opening or maintaining savings accounts) in schools without filing a branch application or obtaining prior approval from the FDIC if:
FRB-Supervised Institutions
The FRB has not issued branch application policies or regulations specifically applicable to youth savings programs. FRB branch application information is available on the FRB’s website.
OCC-Supervised Institutions
National banks that seek to set up school-based youth savings programs in nonbank branch settings must comply with 12 CFR 7.1021. National banks that have school-based youth savings programs that do not meet the conditions in 12 CFR 7.1021 must submit branch applications to the OCC.
National banks may participate in financial literacy programs, such as school-based youth savings programs, on the premises of, or at a facility used by, a school. A branch application is not required and the school premises or facility would not be considered a branch when:
Similar rules are applicable to federal savings associations. Generally, a branch application is not required and a federal savings association’s school-based financial education program would not be considered a branch of the savings association as long as the program meets the following criteria:
6. Does the CIP rule prohibit a minor from opening an account?
No. If a minor opens a savings account, the minor is the financial institution’s customer. For example, where a financial institution sends its employees to a school so that students may open savings accounts by themselves without the involvement of a parent or guardian as part of a program to promote financial education, the student opening an account is the financial institution’s customer.
However, if a parent, guardian, or third party opens an account on behalf of a minor, the financial institution’s customer is the parent, guardian, or third party. The CIP rule states that the financial institution’s “customer” is the person who opens the account for a person who lacks legal capacity, such as a minor.
7. What requirements of the CIP rule apply to a financial institution that opens an account on behalf of a customer, including a minor, such as through a youth savings program?
Section 326 of the USA PATRIOT Act requires each financial institution to establish, maintain, and implement a written CIP appropriate for its size and type of business. As with other accounts, if a financial institution opens an account for a minor, the CIP must include risk-based procedures for: (1) verifying the identity of any customer seeking to open an account, to the extent reasonable and practicable; (2) maintaining records of the information used to verify the customer's identity; (3) determining whether the customer appears on any lists of known or suspected terrorists or terrorist organizations issued by any government agency; and (4) providing customers with adequate notice that the financial institution is requesting information to verify their identities.
8. Based on the CIP rule, what information must a financial institution collect from a customer when opening an account, including for a minor?
Under the CIP rule, a financial institution must obtain, at a minimum, the following information from the customer prior to opening an account:
An address for an individual can be a residential or business street address or, if the individual does not have such an address, an Army Post Office (APO) or Fleet Post Office (FPO) box number or the residential or business street address of next of kin or of another contact individual.
The CIP rule provides that the identification number for a U.S. person shall be a taxpayer identification number. For a non-U.S. person, the identification number shall be one or more of the following: a taxpayer identification number; passport number and country of issuance; alien identification card number; or number and country of issuance of any other unexpired government-issued document evidencing nationality or residence and bearing a photograph or similar safeguard.
9. How can a financial institution verify the identity of a minor in order to satisfy the CIP rule when the minor is the customer?
Since verification procedures are risk-based, institutions may use reasonable documentary or non-documentary methods to verify a minor’s identity. The procedures must describe when the financial institution will use documents, non-documentary methods, or a combination of both. The financial institution’s CIP must contain procedures for verifying the identity of the minor within a reasonable time after the account is opened. For a financial institution relying on documents to verify a minor’s identity, the CIP must include procedures that set forth the documents that the financial institution will use. For example, the financial institution might verify a minor’s identity using a student identification card.
For a financial institution relying on non-documentary methods, the CIP must contain procedures that describe the non-documentary methods that the financial institution will use to verify a minor’s identity. These methods may include contacting a customer or independently verifying the minor’s identity through the comparison of information provided by the minor with information obtained from a consumer reporting agency, public database, or other source. For example, the financial institution might verify a minor’s identity in an in-school program by having a teacher confirm the minor’s identity.
Third-Party Deposit Relationships
10. What are the CIP requirements for customer verification for a financial institution when a third-party (such as a school district or other governmental unit, educational institution, non-profit organization, or corporate sponsor) opens a trust, custodial, or other administrative account at a financial institution to maintain and administer assets for multiple minors?
There are circumstances where a party may create a master savings account with subaccounts for various minors to save for a restricted purpose (such as higher education). For purposes of the CIP rule, generally, the customer is the “person” (individual, corporation, partnership, or trust) who opens a new account for another individual who lacks legal capacity, such as a minor. In these settings, the “customer” is the trust, regardless of whether the financial institution is the trustee for the trust. A financial institution will not be required to look through trust, escrow, or similar accounts to verify the identities of beneficiaries of the accountholder. Instead, the financial institution will only be required to verify the identity of the named accountholder by obtaining, at a minimum, the accountholder’s name, address, and identification number (see response to Question 8 above). Moreover, the CIP rule also provides that, based on the financial institution’s risk assessment of a new account opened by a customer that is not an individual, the institution may need to obtain information about individuals with authority or control over such an account, including signatories, in order to verify the customer’s identity.
This verification method applies only when the institution cannot verify the customer's true identity using documentary and non-documentary verification methods.