Prepare Your Community Bank to Surf the Silver Tsunami
by Jeanne Rentezelas, Senior Vice President and General Counsel, Federal Reserve Bank of Philadelphia, and Larry Santucci, Advisor and Research Fellow, Consumer Finance Institute, Federal Reserve Bank of Philadelphia
If you are reading this article, there’s a good chance you’ve noticed that your customer base is aging. In 2011, the first of the baby boomers turned 65. Since then, about 10,000 more have reached 65 every day, and this pace will continue until 2029.1 This silver tsunami of retirees will challenge conventional banking norms, changing the way community banks and other financial institutions serve their customers. This article discusses some of the changes banks may consider implementing and how community banks are uniquely positioned to safeguard the financial health of the U.S. senior population.
Older Adults’ Financial Needs
An aging population has different financial needs than a younger one. Older customers may be more likely to visit a bank branch than younger ones and thus value the convenience of local bank branches. Some older adults will experience physical limitations that may make it more difficult for them to climb stairs, stand in long lines, or read small print. And many will experience diminished financial capacity, a degradation of their ability to manage their money and make sound financial decisions. Diminished financial capacity is caused by a loss of cognitive function, typically due to the onset of Alzheimer’s disease or other diseases causing dementia. People with diminished financial capacity can have trouble paying their bills and remembering their account balances and are also more likely to be victimized by fraud schemes or financially exploited by friends or family members. The financial consequences can be catastrophic; the average financial exploitation victim loses $120,000 per exploitative event.2 The value at risk is staggering. The Employee Benefits Research Institute estimates that baby boomers and current retirees hold almost 70 percent of all U.S. financial assets, or about $66 trillion.3
A Role for Community Banks
Community banks have local roots that run deep. The relationships bankers have with their customers can go back generations. Simply put, community banks know their customers, and their customers know them. With such long-standing relationships, community banks are uniquely positioned to notice changes in a customer’s behavior, interactions with family and friends, or banking patterns. These relationships also help to align the success of community banks to the continued financial success of their customers. Taking action to protect against elder financial abuse preserves those long-standing relationships and helps build trusting relationships with the adult children who will one day be retirees themselves. On the other hand, not taking action can lead to higher operating expenses and fraud losses, lost business, and reputational damage.
Several community banks have been at the forefront of the fight against elder financial fraud and exploitation. A 2016 AARP white paper recognized Bank of American Fork’s work with the Utah Division of Aging and Adult Services to implement a five-step strategy to help prevent financial exploitation and improve seniors’ banking experiences.4 In 2016, the American Bankers Association (ABA) Foundation presented Montecito Bank & Trust, a locally owned California community bank, with a Community Commitment Award for its work to protect older Americans from financial abuse.5 The ABA Foundation has also honored Bank of the Rockies, National Association, for its programs promoting elder fraud prevention and awareness.6
Six Sound Practices Financial Institutions Can Consider to Address Elder Financial Abuse
Federal agencies and other organizations have offered guidance to assist the financial services community in efforts to prevent elder financial abuse and to intervene when it occurs (see Resources for Preventing Elder Financial Abuse). In a recent Philadelphia Federal Reserve discussion paper,7 the authors reviewed information provided by these and other sources and created a list of six considerations for financial institutions to help detect and prevent elder financial abuse.
1. Train frontline staff on how to recognize and react to signs of diminished financial capacity, elder financial fraud, and exploitation.
The signs of diminished financial capacity, elder financial fraud, and exploitation are often visible to a trained eye. Frontline staff, branch managers, call center employees, and others can be trained to recognize the signs of existing or imminent financial trouble. Effective training programs can help staff identify red flags, provide examples of elder fraud scams, explain what actions bank employees can take once suspicious activity is detected, and clearly delineate the roles and responsibilities of management and staff.
Training need not be costly. Financial institutions have access to a variety of free or low-cost training, including a program launched by the AARP in May 2018, the North American Securities Administrators Association’s (NASAA) Senior$afe Training program, and the Senior Investor Protection Toolkit from the Securities Industry and Financial Markets Association (SIFMA). 8
Scammers are always coming up with new scams and twists on old ones. To keep up with the latest scams, banks can leverage the Federal Trade Commission, the National Consumers League, and the AARP, all of which track scams and post alerts to their websites.9 The AARP’s Fraud Watch Network provides access to information about identity theft, investment fraud, and the latest scams, while its Fraud Watch Helpline fields calls from consumers seeking assistance and reporting new scams. Community bank staff who are alert to the latest scams will be better positioned to detect and prevent fraud and exploitation, as well as to pass along valuable information to their bank customers.
2. Repurpose existing bank systems to detect unusual transactions.
While many of today’s older adults prefer face-to-face transactions with a bank teller, automated surveillance tools may also be considered as internet-savvy baby boomers age into retirement.10 Continuous monitoring and analysis of transaction data can help financial institutions identify, flag, and address unusual activity. For example, sudden activity on a rarely used account, transaction patterns inconsistent with that of an older consumer, and large daily ATM withdrawals are potential signs of financial exploitation.11 Banks may be able to repurpose existing business systems, such as anti-money-laundering (AML) and fraud detection software, to monitor customers’ day-to-day transactions for abnormalities. AML software typically contains an integrated transaction-monitoring module that can be repurposed to detect elder fraud and abuse.
3. Provide account holders and their financial caregivers with tools to help them detect suspicious account activity.
By providing tools such as read-only access to online banking, convenience accounts (a special type of joint account), and suspicious activity alerts, banks can empower older customers and their financial caregivers to help monitor the older person’s accounts for signs of fraudulent or unusual activity. Read-only account access requires one or more trusted people to have access to view the older person’s online banking account via a separate set of credentials (username and password). The trusted person cannot authorize any transactions but will be able to see account activity. Joint accounts or convenience accounts should be encouraged only when the older adult has confidence that the trusted party being added to the account will always act in the interest of the original account holder. If there is any doubt about whether the additional party is sufficiently trustworthy, these account types may not be viable options.12 Account alerts can be especially helpful for account holders suffering from cognitive impairment, as they enable financial caregivers to spot transactions authorized by the account holder that may not be in the person’s financial interest.
4. Prepare a trusted contact form and develop policies governing when an employee may reach out to the person listed on the form.
When bank employees believe an older person is the victim of fraud, they might not be able to convince the person to cancel a transaction. This often occurs when the older adult is the victim of a scam, such as:
- the Grandparent Scam, in which a scammer calls a grandparent, pretending to be a grandchild in trouble and in need of money;13
- the Lottery Scam, in which an older person receives an email, phone call, or letter saying that he or she has won the lottery but must pay a tax or fee, often by prepaid card, before receiving the winnings;14 and
- the Romance Scam, in which a scammer establishes a relationship with someone to gain his or her trust, quickly proposing marriage before ever meeting in person. Eventually, the scammer begins asking for money.15
In those situations, the bank can reach out to someone the older adult trusts to try to convince the older adult to reconsider sending money to the scammer. For that to happen, the bank must have both the trusted person’s contact information as well as the account holder’s consent to contact that person. A financial institution that does not have a trusted contact on file for a particular account may have to allow a suspicious transaction to go through. Banks can make a reasonable effort to obtain the name and contact information for a trusted contact when opening a new account or when updating the customer’s account information. Although consumers may want to keep their financial information completely private, doing so may become an obstacle in preventing or mitigating financial harm. When reaching out to the trusted contact, consistent with relevant financial privacy laws, bank staff members may be limited in what they may disclose. The information provided to the trusted contact may need to be as vague as, “bank staff has reason to believe that the account holder may be the current target of a scam — you might want to speak to the account holder to see if he or she will give details to aid you in providing helpful advice.”
5. Institute policies to prevent an agent under a power of attorney from abusing access to an older person’s finances.
A durable power of attorney is a valuable tool for a person planning for the possibility of cognitive impairment. Establishing this power of attorney ensures that someone else can make decisions for an older adult who is unable to make independent financial decisions. However, even the most well-intentioned power of attorney can turn into a license to steal.16 In certain situations, abusing a power of attorney may not be easily pursued as a crime, such as in situations in which the agent makes gifts of cash or other assets to him- or herself or someone else without specific authorization from the principal or when the agent engages in transactions that go against the principal’s unwritten, but known, wishes.17 Banks can train customer-facing staff to recognize potential power of attorney abuse and, when it is detected, to escalate the issue to a manager specifically trained to address the issue.
In addition to being alert to possible power of attorney abuse, banks also need to be aware that their employees might refuse to honor a valid power of attorney for reasons other than suspected fraud or abuse. The CFPB reports that financial institutions sometimes refuse to accept a power of attorney that is valid under state law.18 The financial institution may object because its own power of attorney form was not used, which is typically not a valid basis for objection under state law. Banks and other financial institutions may want to ensure that their employees are well trained both to honor a valid power of attorney and to detect signs of exploitation so that the purposes of the power of attorney are properly effectuated.
6. Report suspected financial abuse by a caregiver, trustee, guardian, or attorney-in-fact to local law enforcement and adult protective services (APS).19
Many older adults have family members or other trusted persons they can rely upon to assist with banking and investment decisions. Sometimes, what begins as an honest caregiving effort can turn into a financially exploitative situation. When older adults are financially exploited, perpetrators are usually family members or someone they trust.20 As mentioned previously, a single case of financial exploitation can cause tens of thousands of dollars of lost savings. Early intervention by law enforcement and APS is critical in preventing a perpetrator from accessing savings. Unfortunately, the laws governing financial institutions’ reporting obligations are murky and vary from state to state. Some financial institutions have a policy of reporting all cases of suspected elder abuse to APS, whether mandated by state law or not.21 Banks that do not report suspected elder abuse provide opportunities for the perpetrator to steal additional savings. This may also affect the victim’s ability to recover any of the stolen funds through the legal system, since it provides the perpetrator with more time to spend the stolen funds.22 After following the bank’s internal policies and procedures for potential unusual activity, a sound practice is to report the suspected elder abuse to APS regardless of what is legally required.
Resources for Preventing Elder Financial Abuse
Consumer Financial Protection Bureau (CFPB), “Recommendations and Report for Financial Institutions on Preventing and Responding to Elder Financial Exploitation,” (full report), March 2016 https://files.consumerfinance.gov/f/201603_cfpb_recommendations-and-report-for-financial-institutions-on-preventing-and-responding-to-elder-financial-exploitation.pdf
CFPB, “Advisory for Financial Institutions on Preventing and Responding to Elder Financial Exploitation,” (companion advisory to the CFPB’s full report), March 2016
CFPB and Federal Deposit Insurance Corporation, “Money Smart for Older Adults Resource Guide,” September 2018
The Federal Reserve System, “CA letter 13-14: Interagency Guidance on Privacy Laws and Reporting Financial Abuse of Older Adults,” September 2013
National Community Reinvestment Coalition, “Guide to Age-Friendly Banking Products, Services, Protections, and Resources for Older Adults,” 2011
Securities Industry and Financial Markets Association (SIFMA), “Senior Investor Protection Toolkit”
Everyone can do more to detect, respond to, and prevent financial losses for older consumers. Changes in cognitive abilities continue to cost older Americans billions of dollars each year.23 This is money they simply cannot afford to lose: A single financial exploitation event can result in a loss of hundreds of thousands of dollars and can have adverse consequences for physical and functional health.24 Distinguished by their close ties to the communities and customers they serve, community banks can leverage those personal relationships to detect and prevent financial losses resulting from diminished financial capacity, fraud, and exploitation, and serve as a model for the financial services industry to follow.
- 1 Russell Heimlich, “Baby Boomers Retire,” Pew Research Center, December 29, 2010, available at www.pewresearch.org/fact-tank/2010/12/29/baby-boomers-retire/.
- 2 Jilenne Gunther, “BankSafe Safeguards Against Exploitation,” AARP Public Policy Institute, available at www.aarp.org/ppi/info-2018/bank-safe.html.
- 3 Larry Santucci, “Aging, Cognition, and Financial Health: Building a Robust System for Older Americans,” Conference Summary, Federal Reserve Bank of Philadelphia, September 2019, available at www.philadelphiafed.org/-/media/consumer-finance-institute/payment-cards-center/publications/conference-summaries/2019/c-2019-aging-cognition-and-financial-health.pdf?la=en.
- 4 Jilenne Gunther, “Preventing Exploitation: Five Banks Leading the Fight,” AARP Public Policy Institute, April 2016, available at www.aarp.org/content/dam/aarp/ppi/2016-03/Preventing-Exploitation-Five-Banks-Leading-The-Fight.pdf.
- 5 Monica C. Meinert, “Six Banks to Receive Community Commitment Awards,” ABA Banking Journal, September 22, 2016.
- 6 ABA Foundation, “2017 ABA Foundation Community Commitment Awards.”
- 7 Jeanne Rentezelas and Larry Santucci, “Combining Forces to Combat Elder Financial Victimization: How Consumers Can Avoid the Pitfalls of Cognitive Aging and What They Should Be Asking Their Financial Institutions,” Federal Reserve Bank of Philadelphia Payment Cards Center Discussion Paper, June 2018, available at www.phil.frb.org/-/media/consumer-finance-institute/payment-cards-center/publications/discussion-papers/2018/dp18-02.pdf.
- 8 The NASAA’s Senior$afe Training program, unveiled in March 2016, is available at www.nasaa.org/39147/nasaa-unveils-training-program-combat-elder-financial-abuse/ to all members of the banking and securities industries. As part of its free Senior Investor Protection Toolkit (www.sifma.org/wp-content/uploads/2017/07/toolkit-client-protection-playbook.pdf), SIFMA offers resources to help brokers and financial advisers identify the signs of fraud and financial exploitation. Beginning in May 2018, the AARP launched a program for its newly developed BankSafe training platform, aimed at teaching frontline staff, supervisors, and compliance officers how to detect and prevent exploitation. See www.aarp.org/ppi/banksafe/.
- 9 See www.consumer.ftc.gov/features/scam-alerts, www.fraud.org/, and www.aarp.org/money/scams-fraud/.
- 10 Susan Burhouse, Karyen Chu, Ryan Goodstein, Joyce Northwood, Yazmin Osaki, and Dhruv Sharma, “2013 FDIC National Survey of Unbanked and Underbanked Households,” Federal Deposit Insurance Corporation, October 2014, available at www.fdic.gov/householdsurvey/2013report.pdf. The authors found that 54.7 percent of households aged 65 or older primarily used bank tellers to access their accounts.
- 11 See “How Financial Institutions Can Prevent Elder Financial Exploitation,” Narmi Inc., 2018.
- 12 Adding more than one trusted person to the joint or convenience account arrangement may mitigate the risk of one person acting unilaterally, assuming that collusion among the trusted persons added is unlikely.
- 13 National Consumers League, “Fraud Against Older Adults: Grandparent Scams,” fraud.org, 2018, available at https://www.fraud.org/grandparent_scams.
- 14 “Sweepstakes and Lottery Scams,” AARP.org, accessed November 7, 2019.
- 15 “Romance Scams: Online Imposters Break Hearts and Bank Accounts,” FBI.gov, February 13, 2017.
- 16 Lori A. Stiegel and Ellen V. Klem, “Power of Attorney Abuse: What States Can Do About It,” AARP Public Policy Institute, Research Report, November 2008.
- 17 Linda S. Whitton, “National Durable Power of Attorney Survey Results and Analysis,” National Conference of Commissioners on Uniform State Laws, October 29, 2002.
- 18 “Recommendations and Report for Financial Institutions on Preventing and Responding to Elder Financial Exploitation,” Consumer Financial Protection Bureau, March 2016.
- 19 An attorney-in-fact is an agent authorized to act on behalf of another person but not necessarily authorized to practice law. See Legal Information Institute, “Attorney-in-Fact,” accessed November 7, 2019.
- 20 National Adult Protective Services Association, “Get Informed: Elder Financial Exploitation,” accessed November 7, 2019.
- 21 Ronald C. Long, “Elder Financial Abuse,” Elder Abuse and Its Prevention: Forum on Global Violence Prevention. Washington, D.C.: National Academies Press (2014).
- 22 Sandra L. Hughes, “Can Bank Tellers Tell? Legal Issues Related to Bank Reporting of Suspected Elder Financial Abuse,” American Bar Association, 2003.
- 23 MetLife, “The MetLife Study of Elder Financial Abuse: Crimes of Occasion, Desperation, and Predation Against America’s Elders,” June 2011. This study estimates that older victims lose at least $2.9 billion annually from financial abuse.
- 24 See Jaclyn S. Wong and Linda J. Waite, “Elder Mistreatment Predicts Later Physical and Psychological Health: Results from a National Longitudinal Study,” Journal of Elder Abuse and Neglect, 2017, 29:1, pp. 15–42. True Link Financial (2015) estimates that 954,000 seniors are skipping meals as a result of financial losses from abuse.