Authors’ note: This article provides an update to an article published in Vol. 2, No. 4 of Board Briefs, in which the authors discussed pending federal legislation for reporting by financial institutions of suspected financial abuse of senior citizens. The key provisions of that legislation have since become law. This article provides a summary of the provisions of that law and its implications for financial institutions.
According to the U.S. Government Accountability Office, elder financial abuse and fraud costs older Americans an estimated $2.9 billion annually. This abuse ranges from scam emails and phone calls to loved ones pressuring elders to enter into financial transactions they would not otherwise consider. Banks, financial advisors, and insurance providers are often in the best position to spot possible financial abuse and to help stop it before it impacts older Americans. For these reasons, the federal government and many state legislatures are offering protection from litigation (i.e., immunity) in order to encourage those in the financial industry to report potential elder abuse and fraud.
The latest effort to encourage elder abuse and fraud reporting came in May 2018 with the U.S. Congress’s passage of the Senior Safe Act [Pub. L. No. 115-174, § 303 (2018), the “Act”] as part of a larger financial services overhaul, The Economic Growth, Regulatory Relief, and Consumer Protection Act. The Senior Safe legislation was introduced in the last several sessions of Congress during which it won bipartisan support as well as the backing of several trade groups.
Although it imposes no new legal obligations on banks, the Act protects “covered financial institutions” by granting immunity to certain individuals and institutions when they voluntarily disclose suspected financial abuse of a senior citizen to law enforcement and appropriate government agencies. The Act applies to national and state banks, credit unions, insurance companies and their agents, investment advisers, broker-dealers, and other financial professionals. The Act was effective as of May 24, 2018.
To qualify for litigation protection (immunity), certain conditions must be met. First, the individual who reports the suspected abuse must be an employee of the covered financial institution. Second, the financial institution must have trained the employee and have kept records of this training. The training also must meet certain criteria. The training must include how to identify and how to report both internally and externally suspected exploitation of a senior citizen. The training must emphasize the need to protect the privacy of each individual customer. The institution may provide its own training, or it may contract with a third party. Third, the reporting employee must serve in a supervisory, compliance, or legal capacity at the time of reporting. Fourth, the employee must disclose the suspected exploitation in good faith and with reasonable care. Finally, the report must be made to a “covered agency,” which includes state financial regulatory agencies, the Securities and Exchange Commission, certain law enforcement agencies, and applicable adult protective service providers. Although not required, the report should be made in writing in the event that immunity is challenged. If these conditions are met, the individual employee and the covered financial institution are granted immunity from civil litigation and administrative proceedings.
Both training employees and reporting suspected financial abuse of elders under the Act are voluntary, not mandatory. Only those financial institutions wishing to engage in reporting must provide training in order to qualify for immunity. Nevertheless, the Act establishes only the minimum rules, and states are not preempted from having stricter requirements. According to a Consumer Financial Protection Bureau’s 2016 report, over 25 states and the District of Columbia required some form of mandatory reporting by financial institutions. Although current Alabama law only mandates reporting by broker-dealers and investment advisors, future legislation could expand this requirement.
Implementing federal regulations may clarify or change the requirements for financial institutions that choose to report abuse under the Senior Safe Act. The Act does not specify a single regulatory agency that has power to enforce the Act.
Gaines Brake is a member of Maynard’s Elder Law, Health Care, Estate Trust and Business Planning, and Senior Living and Long-Term Care practices. Jim Goyer III is a shareholder and co-chair of the Elder Law and Compliance and Investigations practices at Maynard Cooper. He is also a member of the Financial Institutions, Corporate Governance and Fiduciary Litigation, and Commercial Litigation practice groups.