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Protecting Bank from Possible Minor Mischief
by John Burnett and Randy Carey, BOL Gurus
Guru Bio
Question: We are reviewing minor account products. Questions came up regarding minor versus custodian responsibility for any debit card problems or bad checks written. If a minor defaults on a check or other account responsibility and is under age 18, that minor can back away from responsibility (too young to contract). Is the custodian for the account then responsible for covering any claims against the account? Could you provide how the account can be structured to protect the bank and how to protect the custodian or legal adult on the account?
Answer by John Burnett: Banks should only open accounts, especially checking accounts, after researching and understanding the deposit laws of their state. Some states provide that minors may open accounts "without the incapacity of minority," which is a fancy way of saying that the minor can legally contract for the deposit account, and can't weasel out of it by claiming minority. Sometimes those laws provide for joint ownership. Some states specifically mention only individual accounts. Custodians only hold accounts for the benefit of someone else. When there is a custodian on a minor's account, the minor is not a signer and should not be writing checks or using a debit card. Those banks that open accounts for minors in spite of the minor's lack of capacity to contract in their states should be looking for methods to make sure any adult co-owner or guarantor of the account will be liable, not for ways to protect the adult from liability.
Answer by Randy Carey: If you are issuing debit cards to minors you might want to review your issuer's rules. From memory, VISA rules do not allow the issuance of debit cards to minors.
First published on BankersOnline.com 4/07/08
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