In the past few years, we are seeing a new trend develop where the individual states are creating legislation to help protect their elderly from scam losses. This legislation allows financial institutions to hold suspicious transaction from elderly/vulnerable accounts. So, why is this happening at the state level? There are two reasons. First, the US government, although it talks about protecting consumers from scams, has done little to add guidance/regulation for financial institutions to improve scam controls. In the past, the Federal Financial Institutions Examination Council (FFIEC) would issue online security guidance to financial institution that covered the most recent concerns on fraud attacks against online banking.
Today, the Consumer Financial Protection Bureau (CFPB) is the main government agency responsible for this type of guidance. But no guidance for scam controls has been forthcoming, even though consumer scam losses, many from online banking, exceed $12 billion per year in reported (https://www.ic3.gov/Media/PDF/AnnualReport/2023_IC3Report.pdf) losses. According to the IC3 2023 report, people over 60 were responsible for 7% of all reported complaints, but 14% of the dollar amount of losses ($1.7 billion).
Second, for banks to hold transactions or block money leaving an account, when a scam is suspected, can require legislation to allow the bank to take this extra action. This provides financial institutions with a ‘safe harbor’ from lawsuits when taking actions they believe are in the best interest of the customer.
State regulations
So, as many states are taking control of protecting consumers, we are seeing a variety of legislation being initiated and approved allowing the holding of financial transactions. There are currently at least ten states with approved or pending legislation involving banks/credit unions and/or broker-dealers. These states include California, Connecticut, Florida, Maine, Michigan, Minnesota, Nevada, New Hampshire, Pennsylvania and Wyoming. The state legislations are compared in the table below.
Table 1: Comparison of State Regulations
State | Regulation | Reimbursement | Effective Date |
California | Financial institutions must monitor large suspicious transactions (>$5,000) from accounts of older clients. FIs can delay suspicious transactions for up to three days. FI clients must have a trusted person the bank can contact if there is suspected fraud transaction. Will only apply to transactions assisted by an FI employee. There is safe harbor for FIs when delayed transactions turn out to be legitimate. | FI could be liable for reimbursement if they show reckless disregard for the law. | Vetoed by California Governor 9/28/24 |
Connecticut | Law authorizes banks and broker-dealers to suspend (up to 45 days) transactions by clients 60 or older, when there is reasonable suspicion of financial exploitation. Bank must notify state authorities. | If banks fail to take action when red flags are present, they can be liable for the loss. | 1-Jul-24 |
Florida | Bill provides for protection for adults 65+ and vulnerable adults with accounts at financial institutions. Bill allows FIs to delay disbursements if FI believes there is financial exploitation occurring. Delay can be up to 15 days. FI must have training program pertaining to this financial exploitation. There is a safe harbor for delays done in good faith. | None | 1-Jan-25 |
Maine | This law allows broker-dealers to delay or refuse to process transactions if they suspect an elderly (65+) or vulnerable adult is being financially exploited. Requires broker-dealer to notify customer and a third-party contact, if applicable. Requires broker-dealer to notify state. | None | 2019 |
Michigan | The bill allows a broker-dealer or investment adviser to delay a disbursement of funds or other transaction if the broker-dealer or investment adviser suspected that any client or customer was being financially exploited. The delay can last up to 15 days. | None | 13-Mar-24 |
Minnesota | Financial professionals (banks, credit unions, broker-dealers and investment advisers) can temporarily hold or delay a transaction or disbursement of funds, for up to 15 days, to protect vulnerable adults and seniors from financial exploitation. | None | 2023 |
There is safe harbor protection for holding funds. | |||
Nevada | Financial institutions can delay transactions 15 to 25 business days on accounts held by adults 60 and older or vulnerable adults. | None | 2023 |
New Hampshire | The law allows financial institutions to place a temporary hold on the disbursement of funds if they suspect someone may be taking advantage of a customer. The bill is meant to protect people 65 and older and other adults who may be vulnerable because of physical, mental or emotional issues. | None | 2022 |
Fund dispersal can be delayed 15 business days. There is safe harbor protection for holding funds. | |||
Pennsylvania | Financial institutions are required to report suspected elder financial exploitation. The FI is incentivized to hold funds if a transaction appears suspect. There needs to be specially trained staff (‘designated representative’). There is safe harbor for holding the funds. | Under limited circumstances, customer can seek reimbursement (e.g. designated rep knew or had reasonable cause to suspect fraud and amount is over $10,000). | Pending |
Wyoming | The new law also allows financial institutions to delay transactions on accounts of vulnerable adults for five to 30 business days if financial exploitation is suspected. There is safe harbor protection for holding funds. | 2023 |
There are a number of other states, including Georgia, Kansas and Nebraska, that also allow broker-dealers to hold transactions when elder abuse is suspected.
At the Federal level, the Financial Industry Regulatory Authority (FINRA) “has adopted amendments to Rule 2165 (Financial Exploitation of Specified Adults) in 2022 to permit member firms to: (1) place a hold on a securities transaction (in addition to the already-permitted hold on a disbursement of funds or securities) where there is a reasonable belief of financial exploitation and (2) extend a temporary hold on a disbursement or transaction for an additional 30 business days.” FINRA regulates broker-dealers in the securities industry.
How to identify suspicious transactions
Building red flag warnings into staff procedures become more important today, because in addition to helping to protect elderly customers (and other customers), banks can also become liable for the customer’s losses in certain states. Staff training in branch and the call centers is quite important because of the live interaction with customers.
To help identify suspicious transactions performed by an elderly individual, FinCEN’s 2022 Advisory on Elder Financial Exploitation identified 24 red flags that banks should consider when assessing such transactions. Some of these red flags include:
• An older customer appears distressed, submissive, fearful, anxious to follow others’ directions related to their financial accounts, or unable to answer basic questions about account activity.
• During a transaction, an older customer appears to be taking direction from someone with whom they are speaking on a cell phone, and the older customer seems nervous, leery, or unwilling to hang up.
• An older customer is agitated or frenzied about the need to send money immediately in the face of a purported emergency of a loved one, but the money would be sent to the account of a seemingly unconnected third-party business or individual.
There are other controls bank can use to help stop elderly scams. Some of these controls include:
• Behavioral biometrics (can be used to detect behavioral changes during a session that are indicative of a scam such as signs of stress, coercion, or distraction, during online account opening and anomaly assessment on inbound transaction activity).
• Anomalous transaction analysis (e.g. senior citizen sending large wire amounts for first time).
• Checking to see if the customer is on an active mobile call (the combination of doing a transaction and being on an inbound phone call is a good scam signal).
• Payment delays if the risk score is
• Ability to lock funds in online accounts from being transferred (e.g. Money Lock feature in Singapore)
• Targeted warnings to consumers based on specific transactions being executed
Ken Westbrook, CEO of Stops Scam Alliance, also recommends faster payment banking products be turned off at inception and allow customers to determine the speed of faster payments.
Summary
The concept of holding suspicious payments is taking effect here in the US and also soon in the UK. In the US, holding payments is being driven by state regulation. Effective October 31, 2024, the UK Treasury, after Parliamentary approval, will allow UK banks to hold suspicious transactions for four days.
Because of concerns around the misuse of bank holds, it may continue to require legislation to be enacted in the various countries/states. In the US, this will create a quilt-like mapping of requirements for banks and credit unions. In the US, we may see some common ‘hold’ language that could come from the National Association of Attorneys General (NAAG).
Allowing financial institutions to hold suspicious transactions in accounts of the elderly or vulnerable adults is a positive step in the fight to reduce consumer scams. But the US patchwork of individual states having to execute legislation is an inefficient process. This should be the responsibility of Congress to pass national legislation to help all Americans. Once again, the UK leads the way on how to fight consumer scams with their new legislation allowing holds for any suspicious transactions for four days. The US regulators and Congress need to up their game to protect consumers from scams.
Special thanks to Cristina Ianzito at AARP for helping to identify states with regulations on bank holds for suspicious elderly transactions.