Recent Developments: Bank Responsibility for Elder Financial Exploitation
The Consumer Financial Protection Bureau ("CFPB") recently issued guidance on preventing and responding to elder financial exploitation. Elder financial exploitation is defined as the illegal or improper use of an older person's funds, property or assets. The CFPB's guidance is intended to assist financial institutions in adopting best practices to prevent elder financial abuse and to intervene effectively when such abuse occurs. Accordingly, now is a good time to review your institution’s practices in light of the guidance, as well as the broader regulatory and litigation risks presented by elder financial abuse.
The CFPB's Best Practices
Today there are over 57 million citizens age 62 or older. The U.S. Census Bureau predicts that, by 2050, this number will reach nearly 90 million. With increasing regularity, older Americans are the targets of scams, fraud and theft, and, indeed, elder financial exploitation has been called "the crime of the twenty-first century." It is against this background that the CFPB issued the following guidance.
1. Develop, implement and maintain internal protocols and procedures for protecting elder account holders. These measures should include, but are not limited to: (a) adopting training requirements and allocating resources to protection efforts; (b) implementing procedures for reporting to appropriate federal, state and local entities; (c) arranging the sharing of account information with third parties designated as "trusted" by elder account holders; and (d) complying with the Electronic Fund Transfer Act ("EFTA"), as implemented by Regulation E. The EFTA, among other things, generally protects a customer from personal liability for timely reported unauthorized transfers, and provides limited liability when unauthorized transfers involve a lost or stolen device.
2. Train management and staff to prevent, detect and respond. Banks should train employees regularly and frequently. Training programs should include, at a minimum: (a) adoption of a comprehensive and multifaceted definition of elder financial exploitation; (b) categorical descriptions of indicators of potential elder financial exploitation (e.g., transaction patterns, behavioral changes, theft and coercion scenarios, etc.); and (c) preventative measures and clearly defined action steps for internal responses, hierarchical reporting, law enforcement reporting, and the filing of detailed Suspicious Activity Reports. In addition, banks should tailor training to various employee roles (e.g., tellers versus managers).
3. Deter by harnessing technology. Banks should utilize technology to flag suspicious account activity. This would include, at a basic level, differentiating between services/products and types of activity that may be associated with elder exploitation risk. The CFPB encourages banks to expand their Bank Secrecy Act and Anti-Money Laundering compliance programs to include elder fraud. As banks perform transaction monitoring, tracking, reporting and recordkeeping on customer account data, banks should take active steps to include effective safeguards against elder financial exploitation.
4. Report all cases of suspected exploitation to relevant federal, state and local authorities. Banks should report suspected financial exploitation to all appropriate local, state or federal authorities, regardless of whether reporting is mandatory.
State Reporting. Mandatory and voluntary reporting of elder abuse are governed by state laws, rather than federal legislation. Since the state laws are also in flux, banks should be aware of the reporting requirements in each state in which they do business (and this issue is discussed further below).
Federal Reporting. The Financial Crimes Enforcement Network ("FinCEN") encourages the filing of SARs where a financial institution knows or suspects elder financial exploitation. However, this reporting only augments reporting and investigations at the state level. To view the full text of FinCEN’s prior guidance, Filing Suspicious Activity Reports Regarding Elder Financial Exploitation, click here.
5. Protect older account holders. Banks should consider establishing procedures for enabling customers to provide advance consent to the sharing of nonpublic personal account information with a designated, trusted third party in situations in which the financial institution suspects financial exploitation. In addition, banks should consider offering age-friendly services to older consumers in an attempt to enhance protections against financial exploitation. This would include, for example, offering information on planning for incapacity or disability, honoring powers of attorney, protective opt-in account features (e.g., withdrawal limitations, alerts, transaction restrictions for merchant categories, etc.) and highlighting the risks of joint account access. Also, banks should remain vigilant with regard to their EFTA and Regulation E compliance.
6. Collaborate with other stakeholders. As pillars of the community, financial institutions should attempt to collaborate with state and local agencies, senior service organizations and community initiatives by offering educational programs and distributing informational materials to older account holders on preventing elder fraud.
To view the full text of the CFPB's Advisory and Report for Financial Institutions on Preventing Elder Financial Abuse, click here.
State Reporting Requirements
As noted above, reporting requirements lack uniformity among the states. While the vast majority of states have instituted some form of reporting requirement, some states have stricter reporting requirements than others. Thus, banks must be aware of the reporting requirements for each state in which they do business.
For example, in California, under the Elder Abuse and Dependent Adult Civil Protection Act, codified in the California Welfare and Institutions Code, all officers and employees of financial institutions are required to report suspected elder financial abuse to the state agency, Adult Protective Services. While no private right of action exists, failure to report suspected financial exploitation may render the financial institution liable, both criminally and civilly, through a regulatory proceeding.
By way of contrast, in Illinois, there is no such mandatory reporting requirement. Rather, under the Adult Protective Services Act ("Act"), bank personnel are required to report elder financial abuse to Adult Protective Services only if a bank employee is a trustee or a licensed public accountant. The Act exempts financial institutions and its employees from mandatory reporting. Nevertheless, the Illinois Department of Financial and Professional Regulation strongly encourages the voluntary reporting by financial institutions of suspected elder financial fraud.
Elder Financial Abuse Litigation
There also are litigation risks associated with these issues. In California, for instance, a cause of action for elder financial exploitation is defined broadly to include not only those who obtain or misappropriate an elder’s property through fraud or undue influence, but also those individuals and entities who assist such wrongful conduct. Although the assisting of elder financial exploitation is not applied so strictly as to include unknowingly carrying out a wrongful transaction, the increasing volume of litigation raises the potential for liability when a bank perhaps "should" have been aware of the situation. See Das v. Bank of America, 186 Cal. Rptr. 3d 439 (2010) (finding that a bank is not liable under a claim of elder financial exploitation or negligence due to the mere facilitation of an authorized, but otherwise wrongful, wire transfer).
As a counterpoint, in Illinois, a cause of action for elder financial abuse is defined more narrowly to include only a person who stands in a position of trust or confidence with the elderly person, and who knowingly deceives him or her to obtain control over property. As the bank-depositor relationship is based on contract – i.e., not a fiduciary relationship – the Illinois cause of action does not by itself extend liability to an innocent transacting bank.
However, it is notable that many elder financial abuse statutes provide for enhanced remedies, such as trebled damages, as well as attorneys’ fees and costs. Further, if litigation is brought, a bank may be impacted by negative publicity and, thus, diminished brand value.
Overall, the CFPB's guidance provides banks with a clearer picture of best practices in the prevention of elder financial abuse. Due to the increasing litigation and regulatory risks concerning this area, a bank would be wise to revisit its current policies and procedures concerning elder financial abuse.