According to the U.S. Government Accountability Office, elder financial abuse and fraud costs older Americans $2.9 billion annually. This abuse ranges from scam emails and phone calls to loved ones pressuring elders into financial transactions they would not otherwise perform. Banks, financial advisors, and insurance providers are often in the best position to spot suspected financial abuse and help to stop it before it devastates seniors. Thus, state legislatures and the federal government are increasingly encouraging them to report suspected abuse or fraud by offering protection from litigation.
The latest effort to encourage reporting of elder exploitation came in May 2018, when the U.S. Congress passed 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 had been introduced in the last several sessions of Congress and won bipartisan support as well as the backing of several trade groups.
The Act protects 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 all banks, federal, state, and state-chartered credit unions, insurance companies and agents, investment advisers, broker-dealers, and transfer agents. The Act is effective as of May 24, 2018.
To qualify for immunity, certain conditions must be met. First, the individual who reports abuse must be an employee of the covered financial institution. Second, the financial institution must train the employee and keep records of this training. This training should include how to identify and report suspected exploitation of a senior citizen both internally and to government officials, and the need to protect the privacy of each individual customer. The institution may provide its own training, or it may contract with an outside entity to do so. Third, the disclosing individual must serve in a supervisory, compliance, or legal capacity at the time of disclosure. Fourth, the individual 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 SEC, law enforcement agencies, or adult protective services. Although not required, the report should be made in writing in the event that immunity is challenged. If these conditions are met, the individual and covered financial institution are granted immunity from civil and administrative proceedings for reporting this abuse.
Reporting by individuals in supervisory, compliance or legal functions will force investigation of suspected abuse cases through the chain of command before official reports are made. While this provision of the law limits the types of employees who can obtain immunity for reporting, it allows financial institutions to implement a process with a paper trail to ensure that the requirements of the Act are met in case a report is later challenged.
One important change from the first draft of the bill to the final version is the addition of “legal function” to the definition of employees who may qualify. Granting immunity to employees in a “legal function” opens up the possibility of the Act applying to attorneys. However, it is unclear whether this section applies only to in-house counsel. As the Act limits immunity to “employees” of a covered institution, reports by outside counsel on behalf of a financial institution may not be protected.
Importantly, reporting suspected financial abuse under the Act is voluntary, not mandatory. Nevertheless, the Act only establishes the minimum rules, and states are not preempted from having stricter requirements. According to a Consumer Financial Protection Bureau report in 2016, over 25 states and D.C. 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 broaden this requirement.
One thing to keep in mind going forward is the potential for federal regulations to clarify or change the requirements for financial institutions under the Senior Safe Act. The Act does not specify a single regulatory agency with power to enforce the act, but regulations are always a possibility as several agencies, including FINRA, govern financial institutions.
Now that the Senior Safe Act is the law of the land, financial institutions and certain employees are better protected if they report suspected elder exploitation. However, potential regulations, state statutes, and some ambiguous terms have the potential to change the requirements and protections for financial institutions going forward.
Maynard Cooper’s Elder Care Practice is conducting training programs to help financial institutions protect their senior customers and comply with the new law. Please contact one of the attorneys below to learn more or to schedule training.