Regulators Weigh In On Elder Financial Abuse

By Linda Koco
InsuranceNewsNet

Financial institutions can go ahead and report suspected elder financial abuse to authorities without first following the opt-out process required by federal law.

That’s according to new guidance from the Securities and Exchange Commission (SEC) and six other federal regulators. The opt-out process is what institutions must follow to protect privacy.

The guidance is directed at helping clarify things for financial institutions, but since advisors represent and work for financial institutions, this is a heads up for them as well.

The announcement might seem puzzling at first. After all, making suspected fraud reports would seem to be the natural thing for a financial institution to do, like right away.

The Gramm-Leach-Bliley snag

However, a provision in the Gramm-Leach-Bliley (GLB) Act has created uncertainty about whether and when institutions can do so. This is the requirement thata financial institution must notify consumers and give them an opportunity to opt out before providing nonpublic personal information to a third party, the federal agencies said in a joint statement.

Specifically, GLB says a financial institution may not disclose nonpublic personal information to a “nonaffiliated third party” unless 1) the institution first provides the person with a notice describing the disclosure; 2) the institution provides the person with a reasonable opportunity to opt out of the disclosure; and 3) the person does not opt out.

Those requirements raise a question about what a financial institution is supposed to do if it suspects than an elder is being financially abused. Besides, the opt-out notification process could take precious time to execute, with the delay impairing authorities’ ability to stop a crime before it happens.

There are regulatory concerns as well. For instance, older adults can be “attractive targets” for financial exploitation due to their assets and in some cases their cognitive decline, the seven agencies said, noting that recent studies have suggested that “financial exploitation is the most common form of elder abuse and that only a small fraction of incidents is reported.” 

Clarification

To clear the air, the federal agencies have now issued a five-page, inter-agency guidance document  stating that GLB does provide exceptions to the opt-out requirements.

In other words, financial institutions and their employees can spill the beans to local, state or federal authorities about elder financial abuse that they may suspect.

Some of the exceptions are ones well known to many types of companies — for example, exceptions that allow disclosure to comply with federal, state or local laws; in response to civil, criminal or regulatory investigation or subpoena or summons or judicial process; or in accord with other provisions of law and with the Right to Financial Privacy Act.

But one of the exceptions is pertinent to the financial institution environment in particular. It says the institution “may disclose nonpublic personal information to protect against or prevent actual or potential fraud, unauthorized transactions, claims or other liability.”

For example, this disclosure is allowed when reporting “incidents that result in taking an older adult’s funds without actual consent,” or “incidents of obtaining an older adult’s consent to sign over assets through misrepresentation of the intent of the transaction.”

In their statement, the federal agencies even affirm that they want such reporting to occur.

“Employees of financial institutions may be able to spot irregular transactions, account activity, or behavior that signals financial abuse,” the agencies write. “They (the employees) can play a key role in preventing and detecting elder financial exploitation by reporting suspicious activities to the proper authorities.”

(The guidance does not, however, say what — if anything — might happen to employees or institutions if they do not make such disclosures when they suspect abuse.)

Not alone

The seven agencies are a weighty financial group. They include not only the SEC but also the Consumer Financial Protection Bureau, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Federal Trade Commission, the National Credit Union Administration, and the Office of the Comptroller of the Currency.

They are not the only ones who have been addressing financial fraud issues related to elders, however.

At least since the mid-2000s, the National Association of Insurance Commissioners (NAIC) has published various consumer alerts and model laws, regulations and bulletins on the subject. The initiatives focus on potential fraud against senior customers in the insurance industry, whether it’s with health insurance, annuities, misuse of professional designations, abusive sales practices or other areas.

Privacy issues are on NAIC’s radar too. This July, for instance, the regulatory body’s  Center for Insurance Policy & Research brought up the topic in an article on dementia  written by Louis Alexander , market regulation manager at NAIC, and Tim Mullen, market regulation director at NAIC. (The article is not about elders, but since most people who have dementia are in the senior age category, the elder protection issue is implicit.)

The authors point out that, if dementia may be a possibility, the producer might decide to resolve concerns by inviting a family member to join in on meetings with that consumer.

However, sharing confidential information in that fashion might not be appropriate (from a privacy standpoint), Alexander and Mullen caution. In addition, someone with dementia may not be able to give consent properly to having the family member present.

The authors’ suggestion? Consider asking if any durable powers of attorney are in place, and if so, find out which family members have the powers and under what circumstances were the powers granted.

Bottom line: As with solutions to many insurance and financial issues, solutions to potential elder financial abuse problems often require knowledge of the applicable laws and regulations—and the exceptions.

Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected].

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Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected].