Minor Accounts

Arnold Ramirez
August 4, 2009 | COMMENTS

While it stands true that a minor cannot enter into a contract, minors are not prohibited from being a member of a credit union and holding an individual account in either a federal or a state credit union. Minors are subject to the same membership requirements as an adult and are eligible for the same products and services as an adult. Credit unions are at their liberty to determine which products and services, if any, will be made available to minors based on the amount of risk the credit union is willing to take.

Individual Minor Accounts

Regular share accounts usually present the lowest amount of risk for a credit union willing to provide services to minors. Although a parent or legal guardian may still transact on the account on behalf of the minor, ownership of the account is solely that of the minor. The minor may transact on the account just as any other adult account holder is entitled to do on his or her own account, without exception.

Since the Right to Financial Privacy Act also applies to minors, a minor may act to restrict access to the account from a parent or legal guardian. Credit unions should remember to obtain a new signature card and account agreement for any account owned partially or in whole by a minor upon the minor reaching the age of majority (18 in California and Nevada).

Contracts entered into by a minor are not voidable at the option of the minor, even after the minor is of legal age for a reasonable period of time.

Joint Minor Accounts

Credit unions may feel more comfortable with an adult listed as a joint owner on a minor's account. While the adult may be contractually held liable for all transactions on the account, the minor still has the same rights as any other joint owner. The minor may be listed in the primary position, and have the account reported under his or her social security number. Ownership of the funds in the account is shared by the minor and the joint owner/s. In addition, the account will be subject to right of offsets, levies, or garnishments against the primary or joint owner, which places the minor at risk for loss.

Coogan Accounts

Under California law, minors employed in the entertainment industry and/or professional sports must establish a Coogan account (blocked account) for the deposit of a portion of the wages earned through the respective industries. With the exception of certain transfers and investments permitted under the law, funds in a Coogan account may not be withdrawn until the minor reaches the age of majority or is emancipated.

A common misconception among the parents and representatives of aspiring child entertainers and athletes is that a Coogan account must be established to obtain a contract for employment. In actuality, the account must be opened within seven days after the minor's contract is signed, and not as a prerequisite of contracting. The problem with establishing the account prior to contracting is that, technically, any deposits to the account are subject to the law, regardless of the source. If the child fails to secure a contract, he will have to wait until he reaches the age of majority before withdrawing funds he would otherwise be able to access.

Checks and Debit/Credit Cards

Like individual minor accounts, there is no prohibition on providing checks or issuing debit/credit cards to a minor. Again, the minor's inability to enter into a contract poses a challenge. Unlike regular share accounts, checks and debit/credit cards come with a greater amount of risk. Credit unions that wish to provide these services to minors are advised to consult with their attorney and proceed with caution.

Arnold Ramirez is a research and information consultant for the California and Nevada Credit Union Leagues. This article was reprinted with permission from Credit Union Digest, the publication of the California and Nevada Credit Union Leagues.