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How Banks and Brokers Can Help Stop Elder Fraud

Under federal pressure, financial institutions step up efforts to root out financial abuse

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Unusual financial activity — a series of large ATM withdrawals, a flurry of stock trades or big-ticket purchases — could be clues that an older loved one is being financially exploited. And the first person to spot it might be Mom’s financial adviser, or a teller at Dad’s bank.

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With more of the nation’s savings in the hands of people over 50 and financial abuse of older adults on the rise, companies charged with protecting clients’ assets are stepping up efforts to spot early signs of elder fraud and nip it in the bud, whether perpetrated by a distant, anonymous phone scammer or a relative or caregiver whispering in a vulnerable person’s ear.

“Our mission is investor protection,” says Jeanette Wingler, associate general counsel of the Financial Industry Regulatory Authority (FINRA), a private group authorized by the federal government to regulate brokers. “We are training staff to become more aware of the red flags that come up over and over.”

That awareness is fueling policies and programs centered on bolstering the role of banks, brokerage firms and other financial institutions as a line of defense against elder fraud.

New rules boost industry’s role

In 2016, the U.S. Consumer Financial Protection Bureau (CFPB) offered guidance to financial institutions on preventing older customers from being taken advantage of financially — the first time a federal regulator had provided such extensive suggestions for best practices. The agency called on financial institutions to:

  • Train employees to recognize signs of elder financial exploitation.

  • Promptly report suspected abuse to authorities and provide requested records and other cooperation.

  • Offer “age-friendly services” for older clients, such as alerts for specific account activity and opportunities to name trusted third parties to view or receive information on their accounts.

  • Use data analysis to review transactions and detect departures from an account holder’s typical financial behavior.

Since that CFPB advisory, industry groups, lawmakers and state regulators have taken several steps to implement some of the recommendations.

Mandatory reporting. In 2016, the North American Securities Administrators Association (NASAA), which represents state, provincial and territorial securities regulators in the United States, Canada and Mexico, developed model legislation requiring “qualified individuals” to report suspected elder financial exploitation to regulators and Adult Protection Services. The model bill also authorizes brokers and investment advisers to delay dispersing funds if they believe it will prevent a theft. It has been adopted in 32 states.

“Trusted contact” rule. In 2018, FINRA implemented Rule 4512, which requires investment firms to make a reasonable effort to add a trusted contact to clients’ accounts — a person the firm can contact if it turns up evidence of financial exploitation or is unable to reach the client. The trusted contact is a resource only and cannot trade on the investor’s account or make decisions about investments.

FINRA, with support from NASAA and the U.S. Securities and Exchange Commission (SEC), launched a campaign in September 2021 to promote the use of trusted contacts by investors.

Senior Safe Act. This federal law enacted in 2018 protects financial advisers from charges of violating clients’ privacy if they alert authorities about potential fraud. In turn, FINRA implemented Rule 2165, which allows a firm to place a temporary freeze on an account if there is reason to believe the owner is being financially exploited.

In such cases, the firm notifies the owner and their trusted contact and conducts an internal investigation of the suspicious activity. If it is indeed an attempt to steal funds, the firm may report the matter to the state’s Adult Protective Services and law enforcement.

Safer banking through technology

BankSafe, an initiative rolled out by AARP in 2019, enlists frontline staff at banks, credit unions and investment firms as foot soldiers in fighting elder abuse. The program offers free online courses custom-designed to train employees to spot and respond to red flags for fraud, such as changes of address, abrupt closures of long-standing accounts or a new person asking to be added to an existing account.

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“Perhaps the most powerful tool is to slow down the process, so the customer is not feeling fear from the pressure to act,” says Jilenne Gunther, national director of BankSafe. “We shift the fear to the perpetrator that we may be on to them — and we are.”

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A study by AARP and the Virginia Tech Center for Gerontology found that in the six months after undergoing BankSafe training, employees at 500 branches in 11 states prevented fraud losses of nearly $1 million. The trained tellers reported five times as many suspicious incidents and saved older clients 16 times more money over the test period compared to a control group of untrained colleagues.

AARP plans to add courses in early 2022 for other businesses in a position to flag potential fraud, such as retailers selling gift cards, firms processing wire transfers, and postal and delivery services, Gunther says.

She attributes much of the program’s success to using machine learning — computer algorithms that analyze and find patterns in large amounts of data and continually get better at it — to scrutinize financial transactions.

“The industry has made a lot of improvement with technology to flag suspicious activity,” she says. “We need to continue to develop artificial intelligence to better detect red flags.”

“This is a problem that could be solved with technology,” says Liz Loewy, a former chief of the elder abuse unit in the Manhattan District Attorney’s Office and a cofounder of EverSafe, a company that offers financial monitoring tools aimed at protecting older adults.

EverSafe’s products employ algorithms to detect unusual or erratic financial activity across users’ bank and other accounts and notify them or their loved ones. “Education is important,” Loewy says, “but it needs to be combined with enhanced analytics.”

Reporting lags 

In one area spotlighted by the CFPB — sharing information with authorities that can initiate investigations and prosecutions — progress is less clear.

Federal law requires financial institutions to specify when the suspicious activity reports (SARs) they file with the government involve possible elder financial abuse. But less than a third of incidents that generated SARs from 2013 to 2017 were reported to law enforcement or regulatory authorities, according to a 2019 CFPB report.

Financial institutions are legally liable for losses resulting from credit and debit card fraud but not for withdrawals a customer makes on their account, even if they are the product of scams or financial abuse. “They may not do SARs reporting if the consumer had a loss, if it's seen as an authorized transaction,” says Kathy Stokes, director of AARP’s fraud prevention programs.

Amy Mix, chief of the elder justice section in the Washington, D.C., attorney general’s office, says she is seeing more active cooperation between financial institutions and Adult Protective Services since the period covered in the CFPB study. “We have seen a major uptick in reports over the last three to five years,” she says. 

But Stokes contends the problem will persist until financial institutions share liability for financial exploitation and victims are no longer blamed.

“Banks are really good at realizing a fraudulent transaction on a credit or debit card because it’s their loss,” she says. “As long as the financial institution bears no responsibility for somebody who loses all their money because they were coerced, it will never change, and people will continue to lose their money.”

John Rosengren is a Pulitzer nominee whose articles have appeared in The Atlantic, The Atavist, The New Yorker, Sports Illustrated and The Washington Post Magazine. His novel A Clean Heart was published in the spring of 2020.

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