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In a June 2018 white paper, “Elder Financial Exploitation. Why it is a concern, what regulators are doing about it, and looking ahead,” issued by the US Securities and Exchange Commission, author Stephen Deane called elder financial exploitation “a public health crisis, a virtual epidemic.” 

Why are our elderly more vulnerable to financial exploitation? And why is the problem likely to get worse?

America is aging at a rapid rate

The number of adults 65 or older is expected to reach 90 million by 2050.  According to the United States Census Bureau, “in less than two decades, the graying of America will be inescapable: Older adults are projected to outnumber kids for the first time in U.S. history.” Already, the middle-aged outnumber children, but the country will reach a new milestone in 2034, says the U.S. Census Bureau, when older adults will edge out children in population size: People age 65 and over are expected to number 77.0 million, while children under age 18 will number 76.5 million. It goes without saying that this aging trend lends a special urgency to the problems of elder financial exploitation.

Substantial financial resources

The second set of factors are related to financial and retirement trends. The assets that the elderly have accumulated through life make them a target of financial exploitation; according to the U.S. Census Bureau, the median net worth for homeowners age 65 and older is $201,500.  Moreover, pension trends increasingly have shifted responsibility to the elderly themselves to manage their retirement savings and investments. 

Cognitive decline

“Cognitive decline” is a condition in which decision-making becomes more and more difficult among the elderly. Losing our ability to make clear-headed decisions as we age, especially on matters of such importance as investing, can be even more debilitating than physical decline. Why? The impact of a decision that leads to elder financial exploitation does more than completely devastate an individual; it can be devastating for their loved ones, as well.  An elderly parent who is suddenly faced with financial ruin can put a tremendous strain on family members, who are then faced with taking on that responsibility.

How big a problem is it?

A  study of elder financial abuse conducted by MetLife estimated the cost of financial abuse of the elderly in the U.S. at $2.9 billion.  The study goes on to say that “it has been widely noted that this number probably underestimates the losses, because it relies solely on amounts reported in newsfeed articles. As a result, the annualized estimate could significantly underestimate the true extent of victim losses.”  The National Council on the Aging has this to say on the subject: “While likely under-reported, estimates of elder financial abuse and fraud costs to older Americans range from $2.9 billion to $36.5 billion annually, as the overwhelming majority of incidents of elder financial exploitation go unreported to authorities.”

Another problem with estimating the damage is that victims are encouraged and sometimes even paid to not report an incident of abuse, and a January 31, 2020 article in the Wall Street Journal cites such an incident.  According to reporting, Bank of America Corp. told a 92-year-old customer that the bank would attempt to recover the nearly $40,000 he lost to a phone scam, but only after promising, by signing legal documents, that he would not discuss the fraud or sue the bank. “Such agreements,” says the article, “help conceal losses to scammers, consumer advocates say, limiting awareness of increasingly sophisticated forms of fraud that many victims already find embarrassing.” 

What’s being done and is it enough?

Fortunately, financial institutions, as well as regulatory agencies, are beginning to take the issue more seriously. FINRA (Financial Industry Regulatory Agency) has already taken steps to curb potential fraud in brokerage transactions; FINRA’s recent rule changes allow certain financial firms to place a temporary hold on disbursements from the accounts of customers when financial exploitation is reasonably suspected.

Banks and credit unions are following suit, but taking steps cautiously due to legalities and privacy concerns.  Privacy laws, for example, which vary from state to state, can prevent financial institutions from aiding scam victims.

In the meantime, financial institutions can and should consider operational and compliance measures that can stem the tide of exploitation. According to a February 2018 article on BankDirector.com, “while bank and credit union staff are on the front lines in protecting elderly customers, bank directors play a pivotal, top-down role in emphasizing a culture of vigilance, and in defining policy and strategy to combat elder financial fraud.”  What can they do?

Policies, Procedures, and Training

Directors need to create policies and procedures that will address elder exploitation at their branches, where most elderly customers and members make their transactions. This can start with clearly articulating to staff your organization’s views, guidelines and stated mission with regard to elder financial fraud. Guidelines should then be put in place. According to b, “these may include pre-set withdrawal limits (either daily or monthly), disbursement waiting periods or communications with external sources, such as a trusted contact person for the client, local adult protective services (APS) or law enforcement.”

Lastly, in order to be effective in putting these guidelines into practice, it’s important that staff members receive the training they need to help them identify, address, and report potential incidents of fraud. Front line employees should understand it is critical that even suspected exploitative activity must be escalated through proper channels at their institution.  More importantly, they must know that they have the full support of management throughout the process.

Educate your Members and Customers

Your senior customers and members are not the only ones who need to be able to recognize potential fraud.  Family members, too, should understand what fraud looks and sounds like, and know how to respond.  In-branch messaging, along with “Lunch and Learn” meetings, can go a long way in educating those who could be affected.  Taking the message beyond the branch and into the community can be effective, as well, with presentations made to local assisted living and retirement communities, as well as professional organizations such as Rotary Club.

In addition to education, there’s also the promise of new technology. According to the 2018 SEC report, IT advancements present the most viable solution, “with technologies that will detect, prevent, and perhaps even predict the risk of elder financial abuse. Two-method verifications, voice recognition, and facial recognition are just a few of the emerging tools that could be used to foil attempts by imposters to steal money from the account of victims.”

Conclusion

To recap, elder financial exploitation is already considered a public health crisis and is expected to grow dramatically along with the aging of America, and the trends we’ve talked about here will only exacerbate the problem. 

Financial institutions have a responsibility to keep their customers and members, as well as their family members, informed. While regulatory agencies work toward solutions, banks and credit unions would do well to make certain that those who bank with them are protected. 

For more information on how BankMarketingCenter.com can help your bank with communicating vital information to both your customers and your associates regarding elder financial exploitation, visit bankmarketingcenter.com, or contact Neal Reynolds by phone at 678-528-6688 or by email at nreynolds@bankmarketingcenter.com .  As always, I would love to hear your thoughts on this subject.