Accounts for Minors: Know the Rules

CUNA’s Front Line newsletter
June 16, 2010 | COMMENTS

Can children open accounts at your credit union? If so, frontline employees need guidance from supervisors regarding applicable policies. It's also important for staff to understand laws and regulations surrounding accounts for minors (children younger than age 18).

To illustrate, here's a fictional example: Tommy is in the 10 th grade and works weekends at the local ice cream stand. He earns $200 per month. His mom and dad have accounts at your credit union and are among your best members.

Mom and dad encourage Tommy to open an account at your credit union to deposit his paychecks and to give him a way to pay his cell phone bill.

Tommy is under age 18. Can he open a checking account at your credit union? If so, will he be able to meet the policy identification (ID) requirements of your credit union's Customer Identification Program (CIP)?

Federal credit union bylaws permit federal credit unions to open accounts for minor children. And though credit unions can charge fees to minors, in some cases a minor might choose not to abide by a contract (including a membership and account agreement).

To avoid legal issues, many credit unions require a parent, guardian, or adult custodian to be a joint accountholder before opening an account for a minor. Depending on your credit union's policies, you can set up accounts for minors in several ways:

• Minor only: A minor within the credit union's field of membership can open an account in his or her name. The minor signs the signature card and has transaction authority on the account. The taxpayer ID number (TIN) is the minor's Social Security number (SSN). The account is insured the same as an adult account.
• Minor and adult as joint owners: A minor can set up a joint account with another individual, and this account is treated the same as any other joint account. For joint accounts, the TIN is the SSN of the first named owner/member. So if the minor is the member, his or her SSN is used. Again, the account is insured the same as an adult account.
• Irrevocable gift accounts: The Uniform Transfer to Minors Act account and The Uniform Gifts to Minors Act account are designated specifically for funds to be deposited to an individual account for a minor as an irrevocable gift. The minor doesn't have transaction authority or access to the account. The custodian handles and is responsible for all transactions on an irrevocable gift account. The credit union isn't obligated to monitor use of the funds.

This type of account matures at a designated time. Depending on the state, the designation time can be between the ages of 18 and 21. The TIN used for this account is the minor's SSN, and the account is insured as a single-owner account of the minor. The custodian's insurance coverage isn't affected.

Opening accounts for children can be tricky. Make sure your frontline staff know the rules and your credit union's policies.

Understand CIP Requirements

The USA PATRIOT Act Customer Identification Program (CIP) requires your credit union to collect, at minimum, four pieces of information: name, address, date of birth, and identification number. The CIP also requires the credit union to implement reasonable procedures to verify the identity of any person seeking to open an account.

The regulation permits a credit union to establish its own ID verification policy using documentary and/or non-documentary forms of ID. Most credit unions require members to provide an unexpired government-issued photo ID. In some cases, however, members can't provide these documents. Check your policies on how to handle these situations.

The author, Kimberly Bohannon, is compliance and risk management officer at Knoxville (Tenn.) TVA Employees Credit Union. Reach her at 865-544-5443 or at kbohannon@tvacreditunion.com.