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From Banking and Finance Law Daily, February 25, 2015

Regulators seek to encourage youth savings programs

By Richard A. Roth, J.D.

Five federal regulatory agencies have joined in guidance that is intended to encourage financial institutions to participate in savings programs and financial education aimed at school-age children, beginning in elementary school and continuing through high school. The guidance, which the regulators hope also will bring more families into the financial system, includes a set of frequently asked questions (SR 15-5/CA 15-2FIL-11-2015, and OCC 2015-16, Feb. 24, 2015).

According to the guidance, financial institutions are concerned about how some legal and regulatory requirements affect youth savings programs. This includes concerns over the need for branch applications and the application of know-your-customer duties.

Program features. Financial institutions work with school administrators, state or local government agencies, or private or non-profit entities to offer programs to school-age consumers. These programs often are able to offer students basic savings accounts, either in a single school, across a school district, or outside of the schools, according to the guidance. The latter arrangement would be operated by a government or a non-profit agency.

The savings programs are linked to financial education efforts and are intended to help students understand the longer-term value of building savings. According to the guidance, these programs are effective in “helping improve long-term financial and educational outcomes, such as completing college.”

FAQs. The 10 FAQs comprise the core of the interagency guidance. Four of the 10 address Customer Identification Program requirements.

The FAQs begin by noting that whether a minor can open a savings account without an adult co-signer is a matter of state contract law. However, if the account is a custodial account under the Uniform Transfers to Minors Act or Uniform Gifts to Minors Act, the student should not be given an ATM or debit card that permits withdrawals. All federal consumer protection laws and regulations continue to apply.

The Federal Reserve Board, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, and National Credit Union Administration all have different branch application regulations, the FAQs note. However, as a general consideration, a financial institution might not be required to file an application if the program’s purpose is to educate students rather than turn a profit. The FAQs summarize the four agencies’ requirements and add that, in the case of state savings associations, state laws should be considered.

Customer Identification Program requirements do not prevent minors from opening savings accounts, according to the FAQs. However, the institution needs to understand who its customer is—the student, the student’s adult co-signer, or a trust created by the organization that operates the program—and implement its CIP accordingly. This includes verifying the customer’s identity, maintaining proper records, and making sure the customer is not on any known terrorist list.

A financial institution’s participation in youth savings and financial education programs may be eligible for positive consideration as a community development service under the Community Reinvestment Act, the guidance also says.

MainStory: TopStory BankingOperations CommunityDevelopment

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