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We have a customer who is a beneficiary on a representative payee account. He wants to set up his own deposit account. Can we open an account for him even though we know that he is a beneficiary on a representative payee account, which indicates some level of mental incompetency? – IBA Compliance Connection

IBA Compliance Connection

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We have a customer who is a beneficiary on a representative payee account. He wants to set up his own deposit account. Can we open an account for him even though we know that he is a beneficiary on a representative payee account, which indicates some level of mental incompetency?

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In most cases, we would not recommend opening an individual checking account for the beneficiary of a representative payee account without a competent individual serving as guardian or pursuant to a power of attorney. The Social Security Administration will assign a representative payee to an individual who is “legally incompetent or mentally incompetent of managing benefit payments,” among other reasons. If the beneficiary is legally or mentally incompetent, then you should require that a guardian or agent under a power of attorney open an account for that individual.

However, there are other reasons for assigning representative payees that are not necessarily connected to the beneficiary’s mental competency. For example, representative payees may be assigned to individuals with physical disabilities who may be able to handle a separate individual account on their own. Whether you permit such individuals to open deposit accounts is a business decision for your bank to make.

For resources related to our guidance, please see:

  • 20 CFR 404.2010 (Old-Age, Survivors and Disability Insurance); 20 CFR 416.610 (Supplemental Security Income for the Aged, Blind and Disabled) (“When payment will be made to a representative payee. (a) We pay benefits to a representative payee on behalf of a beneficiary 18 years old or older when it appears to us that this method of payment will be in the interest of the beneficiary. We do this if we have information that the beneficiary is (1) Legally incompetent or mentally incapable of managing benefit payments; or (2) Physically incapable of managing or directing the management of his or her benefit payments . . . .”)