What despots can teach us about student branching

February 27, 2015 at 9:42 am 2 comments

Say what you want about your most successful despots and dictators they are almost all keen observers of the human condition.  Take for instance Lenin who once explained that, “Give  me four years to teach the children and the seed I have sown will never be uprooted.”

He is onto something that should serve as a reminder\wake-up-call   to your credit union about the importance of engaging kids in the financial system.  It’s good for the kids and good for business.  It’s good for the kids because the sooner people start learning that money doesn’t magically grow in Daddy’s wallet but almost as magically via compound interest the better off they  will be.  It’s good for business because brand loyalty starts to develop early.  Today’s seven year old with his two dollar deposit may very well be the erstwhile member, who turns to the credit union for her first mortgage twenty years from now.

So I was happy to see that the NCUA joined with other financial regulators in issuing a joint guidance on school branching.  I’ve always been a little surprised by how little legal guidance is actually available on the topic so anything is a step in the right direction The Guidance does a good job of explaining how federal laws can be complied with in a school setting. That being said NCUA could have done a much better job in the Guidance of answering some of the basic questions as well as highlighting its own resources

For instance where exactly do federal credit unions  get the right to conduct banking activities on school grounds anyway?  According to the Guidance the development of financial literacy programs is consistent with the mission of credit unions to promote thrift.  It explains that   “Applicable state law and the appropriate state supervisory authority determine branch application requirements, if any, for state-chartered credit unions.”  It is odd to me that NCUA didn’t also reference that federal credit unions have the right, but not the obligation, to accept minors as members.

For state chartered credit unions interested in providing branching services you have to start with your state law. For instance in NYS a state chartered credit union  may open up a student branch with the approval of  a school’s governing body. N.Y. Banking Law § 450-b (McKinney).  Membership is available to all the kids.

Does this mean that credit unions can offer normal branches on school grounds? This part of the blog is just my opinion but the answer is no.   NCUA authorizes federal credit unions to offer student branches in order to promote thrift.  NYS law specifically defines a student branch offered by state charters as “pertaining to the in-school services and financial education offered to students.”  There has to be an educational component to your student branching activities.  After all, how is an FCU  promoting thrift by students or a NY CU helping to educate students   if they just happen to go to a school with a branch?

I think credit unions would be well advised to follow one of the criterion used by banking regulators when approving banking activities on school grounds. Specifically branch applications on school grounds are not required for banks when:

“The principal purpose of the financial literacy program is educational. For example, a program is educational if it is designed to teach students the principles of personal economics or the benefits of saving for the future and is not designed for the purpose of profit-making.”

What form would that education take?  That might include getting students to help run the branch or having employees come in to talk about how the credit union works but it does mean that these are not normal branches

Another Guidance oversight is that it didn’t reference an informative 1999 NCUA opinion letter on student branching in which it answers these practical but important questions:

How do we show the accounts on the FCU books?

Should the accounts be in the student’s name with parent co-signing?

Should the accounts be in parent’s name as [or in] trust for the student?

Should the accounts be reflected as custodial accounts?

(http://www.ncua.gov/Legal/OpinionLetters/OL1999-0212.pdf)

 

On that curmudgeonly   note I wish you all a fine weekend.

Here is the Guidance:

http://www.ncua.gov/News/Documents/NW20150224Youth.pdf

 

 

 

Entry filed under: Compliance, General, New York State.

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2 Comments Add your own

  • 1. 630tobmore  |  February 27, 2015 at 9:46 am

    Did you see Lawsky’s recent speech at Columbia University?

    He mentioned that he is looking at requiring regulated entities (which I assume means banks) to use multi-factor authentication:

    http://www.dfs.ny.gov/about/speeches_testimony/sp150225.htm

    Interesting stuff.

    Reply
  • 2. Henry Meier  |  February 27, 2015 at 11:04 am

    Remember you already should be using multi-factor authentication so that shouldn’t be much of a concern.

    Reply

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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