Compliance Journal October 2022
Special Focus Part Two: Considerations when Banking Minors There are several banking relationships which may involve minors. Be it an adult who wants their child to learn about finances through a deposit account or even a loan, a fourteen-year-old who just got their first job and needs a means to deposit payroll checks, a custodial account setup by grandpa and grandma for college savings, or a minor acting as joint lessee on a safe deposit box, there is much to consider when banking minors. In this article, WBA Legal continues the conversation about what banks should consider when banking minors. Part One of the series answered the most frequently asked questions WBA Legal receives regarding WUTMA accounts; the questions were exclusively focused on deposit account relationships. This article is meant to address the topic of contracting with minors more globally, including the doctrine of incapacity. Minor Can Execute a Contract The first question that WBA Legal often receives regarding minors is: Can minors open an account? Or to phrase it more broadly: Can minors enter into a contract? The answer to both is: yes, banks can do business with minors, including opening deposit accounts and extending credit. Minors can enter into contracts. However, a bank also need consider that a minor can escape liability under the contract based upon defenses under contract law. Contract Defense for a Minor Banks entering into a contract with minors need know that a minor could void liability from a bank seeking to hold the minor accountable for terms under the contract. This means that while a bank can contract with minors, doing so can present unique risks and liabilities. The ability of a minor to escape, or void, liability under a contract is often referred to as the doctrine of incapacity. Generally speaking, the theory is that a minor has not mentally developed enough to understand the significance of contracting and thus, to protect the minor, may void the contract. As a general rule under contract law, until a person obtains the age of 18, the doctrine of incapacity will be a notable defense under disputes related to contract terms. It is also worth mentioning that a court could find that someone who has attained the age of 18, or older, still hasn’t matured enough to understand that significance and might be permitted to void the contract. Before frontline staff enter into a deposit, loan, or other contractual relationship with a minor, staff should be sure to first review bank policies and procedures regarding contracting with minors. Considerations Knowing that banks may contract with minors, when banks look to establish policies and procedures involving minors, each bank need consider the risks associated with establishing such contractual relationships and determine how much risk the bank is willing to accept. The risks will vary depending upon product and services. For example, establishing a savings deposit account with a minor is potentially less risky than extending credit or offering very sophisticated products and services to the minor. This is a matter for every bank to decide, as a matter of business.