Attorney, McGuire Woods LLP
FALL 2022 ISSUE:
What is the importance of opening a bank account for a minor? Are minors afforded the same protections as adults with respect to establishing and maintaining bank accounts? If so, what are those protections, and who enforces them?
Nearly seven million American households do not have access to bank accounts or banking resources.¹ Studies illustrate that low-income households with no access to bank accounts have a difficult time escaping poverty and achieving upward economic mobility.² When these households do not have access to traditional banking resources, they rely on alternative financing resources, such as high interest payday loans.³ Accordingly, it is important to ensure that minors, once they enter the work force, have access to bank accounts to address and deter the lack of economic mobility facilitated by the use alternative financing services, typically predatory in nature.⁴ In addition, although a consumer derives many benefits from having a bank account, minors in particular should be aware of the resources and protections available to maximize them as a tool for shaping their future.
What are the benefits of owning a bank account?
There are numerous benefits for minors of opening a bank account. First, establishing a bank account during high school is “associated with higher levels of financial knowledge, even after controlling for factors such as race and parental education.”⁵ Obtaining and developing financial knowledge facilitates the development of credit and maintaining an improved credit score.⁶ Further, the Federal Deposit Insurance Corporation’s (the “FDIC”) 2019 National Survey of Banked and Unbanked Households found that people who maintain bank accounts build savings at a higher rate than those who did not.⁷
The FDIC encourages opening a bank account for the following reasons: (i) avoidance of check-cashing fees; (ii) it assists in obtaining access to other bank products, such as mortgages and car loans; (iii) it provides proof of payment for online purchases; and (iv) it facilitates online purchases, transfer and bill payments.⁸ More directly, benefits of opening bank accounts include (i) accounts are protected by FDIC insurance, (ii) accounts can earn interest, (iii) direct deposit of funds into the account, and (iv) the ability to track spending.⁹
What protections are in place for minors that own bank accounts?
While a banking consumer can raise questions or concerns with their banking service, a consumer can also address concerns to the Consumer Financial Protection Bureau (the “CFPB”), a government agency that assists consumers with being treated fairly and addressing discrimination associated with services and products obtained from financial intuitions.¹⁰ As stated by the CFPB, its aims is to “make consumer financial markets work for consumers, responsible providers, and the economy as a whole.”¹¹ The CFPB accomplishes this by, in part, “[e]nforcing laws that outlaw discrimination in consumer finance.”¹² A consumer can assist the CFPB in accomplishing these efforts by submitting complaints related to financial services or products.¹³ A banking consumer may submit a complaint to the CFPB for a number of reasons, including when the banking consumer believes that there has been a violation of applicable financial rules and regulations.
The following are a few federal rules and regulations were implemented to protect banking consumers and also intend to protect minors: the Electronic Fund Transfer Act (Regulation E), the Truth in Savings Act (Regulation DD), and the Unfair, deceptive, or abusive Acts or Practices under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”).
Electronic Fund Transfer Act (Regulation E)¹⁴
Regulation E protects banking consumers that engage in electronic fund transfers and remittance transfers, which include: transfers through automated teller machines (ATMs); point-of-sale (POS) terminals; automated clearinghouse (ACH) systems; telephone bill-payment plans in which periodic or recurring transfers are contemplated; and remote banking programs.
Regulation E prohibits institutions from charging overdraft fees for ATM and one-time debit card transactions, unless the consumer opts in or affirmatively consents to the institution’s overdraft services.
Regulation E requires disclosures to be available in each foreign language that the remittance transfer provider uses to advertise, solicit, or market.
Regulation E disclosures must be “clear and conspicuous.” Written disclosures are clear and conspicuous if they are readily understandable and readily noticeable to senders.
Truth in Savings Act (Regulation DD)¹⁵
Regulation DD requires that any bank or savings association inform consumers about fees and terms of deposit accounts so that they are enabled to make meaningful comparisons of different institutions.
Regulation DD prohibits advertising about deposit contracts from being misleading or mispresent the account as “free” or “no cost” if any maintenance or activity fee may be imposed on the account.
Unfair, Deceptive, or Abusive Acts or Practices (UDAAPs)¹⁶
The Dodd-Frank Act prohibits acts or practices that are unfair, deceptive, and/or abusive.
An unfair act or practice occurs when: (1) it causes or is likely to cause substantial injury to consumers; (2) the injury is not reasonably avoidable by consumers; and (3) the injury is not outweighed by countervailing benefits to consumers or to competition.¹⁷
A deceptive representation, omission, or practice occurs when: (1) the representation, omission, act, or practice misleads or is likely to mislead the consumer; (2) the consumer’s interpretation of the representation, omission, act, or practice is reasonable under the circumstances; and (3) the misleading representation, omission, act, or practice is material or significant.
Abusive acts or practices occur when: (1) acts materially interfere with the ability of a consumer to understand a term or condition of a consumer financial product or service or (2) takes unreasonable advantage of: (i) A lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service; (ii) the inability of the consumer to protect its interests in selecting or using a consumer financial product or service; (iii) or the reasonable reliance by the consumer on a covered person to act in the interests of the consumer.
Establishing and maintaining a bank account is associated with many economic benefits. For minors in particular, obtaining knowledge of available resources and protections is another step in ensuring that, as banking consumers, they can effectively use a bank account as a tool to access those benefits.
¹ Mark Kutzbach et al., Ctr for Fin. Res., How America Banks: Household Use of Banking and Financial Services, 2019 FDIC Survey, FDIC, Oct. 2020, at 1, https://www.fdic.gov/analysis/household-survey/2019execsum.pdf. ² Marianne Bertrand et al., A Behavioral-Economics View of Poverty, 94 Am. Econ. Rev. 419, May 2004, at 419, 423. ³ Berkeley Economic Review, Banking and Poverty: Why the Poor Turn to Alternative Financial Services, Apr. 15, 2019, https://econreview.berkeley.edu/banking-and-poverty-why-the-poor-turn-to-alternative-financial-services/. ⁴ Bureau of Labor Statistics, Employment and Unemployment Among Youth—Summer 2021, News Release (U.S. Dep’t of Labor), Aug. 18, 2021, at 1, https://www.bls.gov/news.release/pdf/youth.pdf; J. Michael Collins et al., Banking on the Future: Minor-owned Accounts and Financial Inclusion, EduFin Center for Financial Education and Capability, May 2, 2019, at 5, https://www.bbvaedufin.com/wp-content/uploads/2019/11/Montana-State-University-EduFinGrants.pdf. ⁵ J. Michael Collins et al., Banking on the Future: Minor-owned Accounts and Financial Inclusion, EduFin Center for Financial Education and Capability, May 2, 2019, at 2, https://www.bbvaedufin.com/wp-content/uploads/2019/11/Montana-State-University-EduFinGrants.pdf. ⁶ Id. at 4. ⁷ Mark Kutzbach et al., Ctr for Fin. Res., How America Banks: Household Use of Banking and Financial Services, 2019 FDIC Survey, FDIC, Oct. 2020, at 52, https://www.fdic.gov/analysis/household-survey/2019execsum.pdf. ⁸ FDIC, Top Reasons to #GetBanked, https://www.fdic.gov/getbanked/pdf/top-reasons-to-open-a-bank-account.pdf. ⁹ See e.g., CFE Fund, Making the Case for Banking Access: Talking to Unbanked People about Bank Accounts, BankOn, Oct. 2019, https://cfefund.org/wp-content/uploads/2019/11/Making-the-Case-for-BankingAccess-Brief-Oct-2019.pdf. See also Checking accounts: advantages & disadvantages, CapitalOne: Banking Basics (Mar. 16, 2022), https://www.capitalone.com/bank/money-management/banking-basics/benefits-of-checking-accounts/. ¹⁰ Patrice Alexander Ficklin, You have the right to be treated fairly in the marketplace, CFPB: Info for consumers (Apr. 29, 2016), https://www.consumerfinance.gov/about-us/blog/you-have-right-be-treated-fairly-financial-marketplace/. ¹¹ Lissan Anfune, Strengthening the financial future of America’s young workers, CFPB: Data, research, and reports (Jun. 05, 2018), https://www.consumerfinance.gov/about-us/blog/strengthening-financial-future-americas-young-workers/. ¹² The Bureau, Consumer Financial Protection Bureau, About Us, https://www.consumerfinance.gov/about-us/the-bureau/. ¹³ Submit a Complaint, Consumer Financial Protection Bureau, Consumer Education, https://www.consumerfinance.gov/complaint/. ¹⁴ Regulation E, 12 C.F.R. §§ 1005.1–1005.36 (2022). ¹⁵ Regulation DD, 12 C.F.R. §§ 1030.1–1030.11 (2022). ¹⁶ Dodd-Frank Act, Title X, Subtitle C, Sec. 1036; PL 111-203 (July 21, 2010). Examples of unfair acts of practices enforcement actions include: “Refusing to release lien after consumer makes final payment on a mortgage,” “Dishonoring credit card convenience checks without notice,” “Processing payments for companies engaged in fraudulent activities.” See CFPB Consumer Laws and Regulations: UDAAP, Manual V.3, at 4 (Mar. 2022), https://files.consumerfinance.gov/f/documents/cfpb_unfair-deceptive-abusive-acts-practices-udaaps_procedures.pdf. Additionally, examples of deceptive acts or practices include “inadequate disclosure of material lease terms in television advertising” and “misrepresentation about loan terms.” Id. ¹⁷ Countervailing benefits means that there are no benefits that offset the injury such as benefits to the consumer (e.g., lower prices) or to the competition (e.g., more availability of products). Id. at 3.