Back and Forth on Age-Based Accounts: Navigating the Regulatory Maze
With the back-to-school season, an influx of advertisements promoting checking and savings accounts tailored for students has caught my attention. These accounts often establish eligibility not by the customer’s student status but rather by their age. However, in light of recent developments, it’s essential to revisit the landscape of banking practices tailored for students and other age-based accounts.
In the past, the issue of age-based banking accounts drew significant scrutiny from regulatory bodies like the FDIC and others. Many banks rolled out specialized checking accounts for individuals aged fifty and above, accompanied by enticing perks such as free checks, no minimum balance requirements, and zero monthly fees. When these accounts included any credit-related features, such as overdraft protection or loan discounts for automatic payments, banks found themselves facing fair lending violation citations.
Regulation B (12 CFR Part 1002), the regulation governing the Equal Credit Opportunity Act, does permit lenders to provide added benefits to individuals aged 62 and older. However, beyond this age-based provision, a lender cannot discriminate based on age as long as the individual possesses the legal capacity to enter into a contract. These specialized accounts were effectively discriminating against those under 50 by granting benefits exclusively to those aged 50 to 61, in violation of Regulation B.
Likewise, today’s student checking and savings accounts, featuring age-based eligibility criteria (e.g., limited to those under 26), are likely infringing upon Regulation B and the Equal Credit Opportunity Act if they include any credit-related features and do not offer similar accounts with identical features at the same price to those over 26.
In March 2022, the Consumer Financial Protection Bureau (CFPB) issued new UDAAP guidelines. These guidelines state that discrimination may meet the criteria for “unfairness” if it causes substantial harm to consumers that they cannot reasonably avoid and if this harm is not outweighed by benefits to consumers or competition. Importantly, these guidelines emphasize that discrimination can harm consumers, even if it is not intentional, and can be considered unfair even when fair lending laws do not directly apply. The Federal Trade Commission (FTC) has taken a similar approach with UDAP under Section 5 of the FTC Act.
While the CFPB provided an example of discrimination based on race as a form of unfairness, it stands to reason that age-based discrimination could also be viewed as an unfair practice under this approach, even in cases where the account lacks credit-related features.
Adding complexity to the matter, a Federal District Court for the Eastern District of Texas vacated the changes made in March 2022 to the CFPB’s Exam Manual (Chamber of Comm. of the U.S. of Am. v. Consumer Fin. Prot. Bureau, No. 6:22-cv-00381 (E.D. Tex. Sep. 8, 2023)). The court reasoned that the CFPB exceeded its UDAAP statutory authority because discrimination and unfairness are treated as distinct concepts in the act, creating and empowering the CFPB. However, the court did not address the FTC’s UDAP interpretations, and federal banking agencies and state attorneys general have the authority to enforce UDAP violations under the FTC Act.
To further complicate the matter, the previous UDAAP examination procedures indicate that a transaction, while technically compliant with federal or state laws, may still violate UDAAP regulations. Even though Regulation B explicitly allows preferential treatment for individuals aged 62 or older, an age-based account for this demographic could potentially be deemed an unfair act or practice. Although it’s highly improbable that an examiner would reach such a conclusion, it may be prudent to reconsider the use of age-based restrictions in these accounts.
Because of this uncertainty, financial institutions should thoroughly evaluate all age-based accounts, particularly those with age restrictions, such as student accounts or senior accounts for individuals aged 50 to 61, to assess their UDAAP risk. Regarding student accounts, a recommended course of action would be to eliminate age requirements and instead implement a certification or annual proof of student status. In conclusion, the evolving regulatory landscape requires careful consideration and adjustment of age-based banking practices to ensure compliance and minimize potential UDAAP and UDAP risks for financial institutions.”