Fraud Management & Cybercrime , Fraud Risk Management , Legislation & Litigation

State Lawmakers to Give Banks Tools to Fight Elder Fraud

As cyber fraud against senior citizens rises, at least four U.S. states are considering new legislation to fill the gaps in fraud protection normally covered by the federal Consumer Financial Protection Bureau. The bills would protect seniors by empowering banks to block suspicious transactions.

See Also: Tackling Payment Screening Challenges Head On

Pennsylvania's House Bill 2064 would protect senior citizens from fraud by giving banks new tools to identify and halt fraudulent transactions. The Pennsylvania Senate is currently considering the bill, which is backed by the attorney general and passed the House with strong bipartisan support in July.

Florida has already taken major steps to fight fraud. Earlier this year, Gov. Ron DeSantis signed nine bills into law designed to safeguard seniors. Set to take effect next January, the laws will allow financial institutions to delay transactions if they suspect a senior citizen is being defrauded.

Other states including California, Connecticut, Maine and Delaware are drafting legislation to combat the rise in elder scams - and protect citizens from losing their life savings to cybercriminals.

"Gangs are stealing billions of dollars from Pennsylvanians each year, often wiping out their entire life savings,” said Nicholas Smyth, assistant chief deputy attorney general at the Bureau of Consumer Protection. "House Bill 2064 would give banks the ability to block suspicious transactions, stopping cybercriminals before they steal the first dollar,” he said in a recent LinkedIn post.

These states are taking the lead with banks because in an election year, the federal Consumer Financial Protection Bureau is unlikely to propose new requirements to address online scams and money mule management. The bureau's Regulation E requires reimbursement for unauthorized payment fraud made through electronic fund transfers, but Regulation E and the CFPB have been largely silent about reimbursement for online authorized payment fraud.

While it's encouraging to see individual states taking action, a patchwork of legislation could complicate matters for financial institutions. "It will be more challenging to banks to manage each state somewhat differently and navigating the varying requirements," said Ken Palla, fraud expert and former director at MUFG Bank.

Seniors Targeted by Impersonation Scams

The volume of fraud targeting seniors is growing. The 2023 Internet Crime Complaint Center report found that impersonation scams alone resulted in more than $1.3 billion in losses, and nearly half of the victims were over 60 years old. Overall, seniors filed 101,068 complaints in 2023, with total reported losses of $3.4 billion.

States with the largest number of complaints include Washington, Michigan, Illinois and Pennsylvania.

Liabilities for Banks

A closer look at the state elder fraud bills shows that while the overall language is similar, difference exist in the level of liability placed on banks.

The Pennsylvania legislation would require financial institutions to report any suspected elder financial exploitation. It enables and encourages financial institutions to place a hold on a transaction if they suspect elder financial exploitation, and if banks fail to stop the transaction, they could be liable for reimbursement.

The Maine bill requires financial institutions to delay or refuse to process transactions, and they can also be held liable for failing to do so.

Other states have dropped civil liability for banks. For example, financial institutions in California must set up the monitoring program by Jan. 1, 2026. Institutions that fail to implement such controls, which will apply only to transactions assisted by a bank employee, incur liability for fraud losses if found to have shown "reckless disregard" for the law. The California bill also includes a safe harbor provision that shields banks from civil liability when they delay transactions that turn out to be legitimate.

In Connecticut, the law authorizes but does not require banks to suspend transactions initiated by clients 60 years old or older when "reasonable suspicion of financial exploitation" or possible theft from their accounts arises. Banks must report concerns to the state's Banking Department or Social Services Department for investigation.

At the same time, banks are getting legislative support to fight fraud. But this flurry of state laws will create more complexity for bank compliance departments, and it raises questions about enforcement for banks serving customers in states such as Pennsylvania but domiciled elsewhere, and vice versa.

Unless the CFPB decides to take matters into its own hands, the situation will be similar to what banks in the U.S. are facing to meet the various privacy law requirements of different states.

Missed Opportunity

Most new federal regulations and legislation in Washington has been stalled in the lead-up to the U.S. presidential election in November, and the CFPB appears to have missed a critical opportunity to protect seniors from fraud. While the agency has considered making banks more accountable for safeguarding the elderly from scams, it has yet to take proactive steps.

"The state laws now give banks the business case to add controls. CFPB could have easily done this. The election doesn’t matter here. CFPB can act now if it chooses," Palla said.