Elder Financial Exploitation is a Financial Crime

The title of this post may seem obvious, but do you know what your financial services company should be doing to detect, report and prevent it? As with many financial crimes, the activity often touch FIs. So what exactly is elder financial exploitation (EFE)? EFE refers to the “illegal or improper use of an older adult’s funds, property, or assets.[i]”

Federal Government

Like many aspects of financial crime, EFE is governed by a patchwork of federal and state laws, regulation and guidance. At the federal level there are several laws relating to EFE: the Elder Justice Act (enacted March 23, 2010 as part of the Affordable Care Act) and the Elder Abuse Prevention and Prosecution Act of 2017. The challenge of the congressional response to EFE is that little funding has been appropriated to implement either of these laws.[ii] There are numerous anti-EFE efforts across the federal government, funded at the individual agency level. There is also guidance on EFE from some agencies, including the Financial Crimes Enforcement Network (FinCEN), the Consumer Financial Protection Bureau (CFPB), and the Federal Trade Commission (FTC).

FinCEN’s guidance, published in early 2011, focuses on reporting suspected EFE on a Suspicious Activity Report (SAR). EFE was added as a designated category on the form beginning in 2013. The guidance includes a list of red flags to help identify potential EFE events. At a high level, the red flags fall into two groups – erratic or unusual transactions and interactions with customers.

The CFPB guidance (in the form of a study), Suspicious Activity Reports on Elder Financial Exploitation: Issues and Trends, was published in early 2019. As noted in the title, it too focuses on SARs. The study looks at all of the EFE SARs filed from 2013 through 2017. Some of the key findings in the report are:

• SAR filings on EFE quadrupled from 2013 to 2017
• Money services businesses have filed an increasing share of EFE SARs received
• Adults ages 70 to 79 had the highest average monetary loss ($45,300)
• Losses were greater when the older adult knew the suspect
• More than half of EFE SARs involved a money transfer
• Checking or savings accounts had the highest monetary losses
• The suspicious activity reported in an EFE SAR took place, on average, over a four-month period
• Fewer than one-third of EFE SARs indicated that the filer reported the suspicious activity to a local, state, or federal authority.

In July 2019 the CFPB also issued Reporting of Suspected Elder Financial Exploitation by Financial Institutions. The report is an update to the bureau’s 2016 report on EFE. The 2019 report focuses on both reporting potential EFE through the SAR mechanism and under the various reporting requirements of individual states.

The FTC report, published in late 2019, discusses the agency’s efforts to protect older consumers. The data used in the report was received through the FTC’s Consumer Sentinel Network, an online platform and database through which consumers can report instances of EFE and other frauds and the FTC can share the information with federal state and local law enforcement. One of the report’s interesting findings is that “older adults are the least likely of any age group to report losing money in a fraud, but their individual median dollar losses remained higher than for younger adults.” In 2018, adults age 80 and older had a median reported loss of $1,700, compared to $400 for adults 20-29.

These reports from the federal agencies (and efforts by the Departments of Justice and Treasury) make clear that EFE is a major problem which needs a continuing federal response.

State Governments

All 50 states and the District of Columbia have some form of EFE protection laws. The range of coverage and funding vary across the states. One item of importance for FIs is whether a state in which it has customers has a mandatory reporting requirement. Twenty-six states and DC have such requirements. The specific report regimes vary. Simply filing a SAR will not bring your FI into compliance with those state reporting requirements.

In reviewing your EFE prevention program, here are some things to consider:

• Does your program include surveillance for telltale transactions such as:
• Frequent large withdrawals, including daily maximum currency withdrawals from an ATM
• Uncharacteristic attempts to wire large sums of money
• Sudden Non-Sufficient Fund activity
• Checks being cashed by a third party that are signed by the customer but obviously filled in by someone else 
• Are your personal bankers and other customer facing staff trained to watch for:
• Caregivers or other individuals who show interest in an older customer’s finances who don’t allow the customer to speak for themselves or are reluctant to leave the customer’s side during a conversation
• Situations where your staff is unable to speak directly with an older customer, despite repeated attempts to reach them
• A new caretaker, relative, or friend who suddenly begins conducting financial transactions on behalf of the customer without proper documentation
• Other sudden changes in the relationship between relatives or care givers and the customer which appear to impact the customer’s control of their finances or assets.
• Does your program comply with the reporting requirements for the states in which you have customers?
• Does your financial crimes prevention training include information on EFE?

EFE continues to be a significant problem as our aging population grows. It is important for FIs to have effective processes to detect, report and interdict EFE events to protect customers.

[i] Elder Financial Exploitation Why it is a concern, what regulators are doing about it, and looking ahead, SEC, Office of the Investor Advocate, June 2018.

[ii] Elder Abuse The and Now (1979 – 2019), Bifocal, A Journal of the ABA Commission on Law and Aging, Vol.41. Issue 2 (November-December 2019)