It's been a murky area for bank employees for some time: When does the suspicion that an elderly customer is being defrauded overcome laws protecting privacy rights?
As the U.S. population ages, financial scams targeting the elderly have become a growing problem, netting thieves billions of dollars a year. And the front line of defense against this form of elderly abuse often is a teller or credit union staff member whose hands have been tied by regulations requiring them to keep mum about a customer's financial activities.
Until now. Eight federal regulatory agencies have issued a joint document that clarifies privacy rights and responsibilities for employees of financial institutions. They provided this guidance because so many companies have expressed concern that the Gramm-Leach-Bliley Act, aka the Financial Services Modernization Act of 1999, puts privacy ahead of fraud prevention.
Fraudsters are masters at manipulating their victims – especially seniors. They can convince someone to give them thousands of dollars for some bogus reason: whether it’s to claim a sweepstakes prize, help a loved-one in distress or to strike it rich with a “guaranteed” investment opportunity.
An employee at a bank or credit union might suspect something is wrong when a customer makes an unusually large withdrawal, but they may not say anything because of privacy concerns.
“Privacy protections are important to everyone, but those privacy protections provide clear exceptions in the case of addressing fraud or other illegal misconduct,” said Martin Gruenberg, chairman of the Federal Deposit Insurance Corporation (FDIC).
The Financial Services Modernization Act requires financial institutions to notify customers and give them the opportunity to opt out before providing nonpublic personal information to a third party. (That’s why you get those privacy notices every year from you bank, credit union and investment firm.)
Richard Cordray, director of the Consumer Financial Protection Bureau (CFPB) said “reporting suspected elder financial abuse to the appropriate authorities is typically the right thing to do and generally will not violate the Gramm-Leach-Bliley Act.”
The new guidance, issued Tuesday, also makes it clear that financial institutions can disclose nonpublic personal information to law enforcement agencies investigating suspected financial abuse of older adults.
A serious problem that is likely to get worse
No one knows for sure how much elderly Americans lose each year to financial fraud. A study done by Metlife estimated the loss at more than $2.9 billion in 2010.
And as the General Accounting Office pointed out in a recent report: "As the U.S. population ages, growing numbers of older adults could be at risk of financial exploitation, so its potential impact on society is likely to increase."
Fraud experts say the ability to identify warning signs, such as an uncharacteristically large withdrawal or a wire transfer overseas that just doesn't seem right, and the willingess to report them are critical to reducing the problem.
“It will make a significant contribution to protecting elder Americans against financial fraud, which will help to provide great confidence in our financial system as a whole,” said Comptroller of the Currency Thomas Curry.
More needs to be done
Often, when a senior has money stolen by a scammer or trusted family member, they are too embarrassed or frail to report the crime. That's why those in a position to spot a problem are vital to stopping this financial exploitation.
A few years ago, Stephanie Schneider, manager of Premier Members Federal Credit Union in Longmont, Colo., suspected an 85-year-old member with diminished capacity was being exploited by his neighbor. She did some investigating, reported her suspicions and the situation was dealt with by the authorities.
“I think financial institutions need to take that extra step to protect their customers,” Schneider said. “If I see that something’s not right, then I need to be able to find out what’s going on and try to fix it. It’s just the morally right thing to do. No one should be able to take advantage of the elderly.”
The eight federal agencies that issued guidance on privacy laws and reporting financial abuse of older Americans are: the Board of Governors of the Federal Reserve System, Commodity Futures Trading Commission, Consumer Financial Protection Bureau, Federal Deposit Insurance Corporation, Federal Trade Commission, National Credit Union Administration, Office of the Comptroller of the Currency, and the Securities and Exchange Commission.