The fight against senior scams
The U.S. Centers for Disease Control and Prevention might be best known for its efforts to combat obesity, or Zika, or the H1N1 flu virus. But last year, it drew new attention to a hazard that doesn’t sound like a disease at all.

The U.S. Centers for Disease Control and Prevention might be best known for its efforts to combat obesity, or Zika, or the H1N1 flu virus. But last year, it drew new attention to a hazard that doesn’t sound like a disease at all.

The hazard is “senior financial abuse,” meaning the theft of older people’s resources by someone they trust. Alarmed by the growing cost of the problem and the lack of a clear strategy to combat it, the CDC included in a first-of-its-kind report a definition for what constitutes the financial exploitation of old people. It includes fraud, breach of personal trust, poor investment advice, or improper use of power of attorney.

Defining the problem is an important step that the agency hopes will make senior financial abuse more measurable and preventable. No complete numbers exist, but it’s safe to say financial abuse costs older Americans billions of dollars annually. In New York alone, the state estimated its seniors lost as much as $1.5 billion over 12 months from misappropriation of funds. A 2016 survey from the Investor Protection Trust said almost 1-in-5 seniors, some 7 million Americans, report that they have been victims of exploitation. Most cases don’t come to the attention of authorities, so experts believe the actual number could be a lot higher.

In one sense, the CDC move simply added a new a layer of protection to its monitoring of the elderly, the same way it tries to track physical harm and neglect. But in targeting financial abuse, it also was shining a light on a big and growing problem: An increasing quantity of American assets are held by elderly people, who are more vulnerable to being exploited.

Rapidly evolving technology, decreased cognitive capacity and social isolation make older people especially vulnerable to being scammed. And their assets are becoming a bigger and bigger honeypot. The median wealth of families headed by someone at least 62 years of age rose 40 percent from 1989 to 2013, according to a working paper from the Federal Reserve Bank of St. Louis. (During the same period, the median wealth of families headed by someone between ages 40 and 61 dropped 31 percent.)

The growing alarm over financial abuse, however, is colliding with the Trump administration’s push to ease regulations on the banking industry and loosen consumer protections, both of which could disproportionately affect older Americans. In August, the administration proposed to delay key parts of an Obama-era rule that requires financial brokers to put their customers’ interests ahead of their own compensation when offering retirement advice.

In Congress, Republicans are seeking to dismantle the Consumer Financial Protection Bureau, which has an office dedicated to older Americans. Legislation has stalled that would encourage financial professionals to report suspected senior fraud. And lawmakers have even failed to fund a safeguard for seniors that’s already on the books: the Elder Justice Act, enacted as part of Obamacare in 2010. As a result, “the federal government has not substantially developed and expanded its role in addressing the prevention, detection and treatment of elder abuse,” the Congressional Research Service said in a January report.

With Washington relaxing its protections, states have begun taking matters into their own hands—including several senior-heavy Republican states led by those that were among Donald Trump’s biggest backers in 2016. Alabama, Arkansas, Indiana, Louisiana, Mississippi, Montana, North Dakota and Texas have all passed legislation protecting seniors from financial abuse. Others are supporting former President Barack Obama’s so-called fiduciary duty rule guiding investment advice for retirement savers, drawing the ire of big financial firms. America appears to be headed toward a conflict over just what kinds of protections older people should enjoy — and who is supposed to protect them.

THE CDC MOVE follows the work of Robert Roush, a doctor who runs the Texas Consortium of Geriatrics Education Center in Houston. After reading about how the parents of a former Securities and Exchange Commission chairman were pestered by aggressive financial brokers, Roush in 2009 started training medical professionals to screen for financial abuse in older patients.

It might seem far afield for a doctor, but he had found that financial woes could have a powerful effect on people’s health. When older people lose so much money that they have to choose between health care costs and routine living expenses, he said, “it becomes a clinical issue."

The SEC helped connect Roush to a little-known group of state-level financial-sector watchdogs, the North American Securities Administrators Association, and he began working with them on the issue. Now, 33 states have teamed up with him in his education program, and the NASAA is lobbying states and Congress to adopt legislation protecting seniors from financial abuse. The group has drafted model legislation requiring financial professionals to report suspected financial abuse of seniors to both state securities regulators and adult protective services. It also gives professionals authority to temporarily delay disbursement of money in instances where they suspect misconduct.

A woman sits in her dining room as mail stacks up on her kitchen stool. Isolation can make seniors especially susceptible to financial fraud. | Getty

Their goal is to put the ball in the court of the financial industry, so brokers, as well as banks and credit unions, learn to watch for the signs an older customer is being taken advantage of. (Roush is also pleased with the CDC effort, though he considers it only a first step: “It is just like when we first started screening for cancer," he said. "The more you look for cancer, the more cancers you find.")

Oversight from government watchdogs is important because financial abuse is often carried out by someone seniors trust. Thomas Clement of Foley, Alabama, lost more than a half-million dollars on an investment before he recognized it as a scam. In 2005, at the age of 65, Clement started investing in a tire-recycling business with a man he met on a trip to Australia. Four years and $650,000 later, when he tried to collect returns he was owed, Clement realized he had become a victim.

He reported his case to the Alabama Securities Commission and was able to recoup about $500,000. The people he gave money to eventually were indicted for fraud.

But his case is rare in one respect: Researchers say elderly victims usually do not report their own potential financial exploitation, making them even more alluring targets. They may not detect it; they may be embarrassed to admit it, or they might want to shield their children and caregivers from law enforcement when a crime has been committed.

“I was reluctant to do that,” Clement admits about reporting his own abuse.

In addition, state regulators and adult protective services agencies are often operating with insufficient funding, which limits the scope of what they can do, said Corey Carlisle, executive director of the ABA Foundation, affiliated with the American Bankers Association.

“There just aren’t enough resources to combat this problem,” he said.

MODERN TECHNOLOGY OFFERS new and insidious ways for abuse to occur—though it can also offer tools to detect it. Judith Shaw, Maine’s securities administrator, said many people 80 or older don’t manage their finances electronically and are vulnerable to people who offer to help them set up online accounts. The elderly individuals go to their banks, she said, “only to find that their accounts have been drained.”

Regulators trying to solve the problem see a handful of promising approaches. One is proactive: The Texas State Securities Board, for example, is trying to address the dangers posed by online scammers by implementing a “market surveillance program” where employees look for scams, such as investment opportunities advertised through Craigslist. The agency also does undercover investigations.

“That’s what law enforcement and regulators need to be doing, because the senior population is growing, but [agencies] are not getting many more resources,” said Joe Rotunda, director of enforcement at the state securities board. “They have to be innovative.”

Another tactic is data analysis. The Treasury Department's Financial Crimes Enforcement Network, or FinCEN, issued an advisory in 2011, urging financial institutions to flag potential abuse in a suspicious activity report, a database that’s made available to law enforcement. That type of monitoring is typically used to combat financial crimes like money laundering or terrorism financing, but can be a key tool for combating exploitation of seniors as well.

Last month, FinCEN and the CFPB put out a joint memo to emphasize that financial institutions and law enforcement need to work together to combat elder exploitation. “Timely reporting of suspicious activity, regardless of whether reporting is mandatory or voluntary under state or federal law, is critical in engaging entities that may have complementary information on the victim or the perpetrator from other sources and may be well positioned to collaborate on investigations,” they said.

Banks, credit unions and brokers have plenty of clues that something might be going wrong and should adjust their fraud-monitoring systems to detect those signs, said Naomi Karp, a senior policy adviser at the CFPB.

“If a person in their 20s goes to an ATM at 3 a.m., that’s not going to set off any red flags,” Karp said. “But if you know this is an 80-year-old person at an assisted living facility … the alarm should go off.”

Federal bank regulators in 2013 issued guidance assuring the institutions they supervise that they won’t run afoul of privacy laws by reporting suspicious activity related to financial abuse of elderly adults.

Some of this monitoring seems like common sense. But some anti-abuse measures have met with serious friction in Washington—none more so than the "fiduciary rule," a regulation adopted by the Obama administration in April 2016 for brokers who offer retirement investing advice.

LEFT: A woman embraces her father, who was a victim of financial fraud. He goes only by Mr. W. in public, fearful of being targeted for fraud again. RIGHT: Mr. W testifies at a hearing on scams against the elderly before the Senate Special Committee on Aging in 2014. | AP Photos

The product of six years of debate with the financial industry, it would have regulated advisers more like doctors or lawyers, by exposing them to the threat of litigation if they put their own interests ahead of their clients.

The rule was strongly backed by the AARP, which says the fiduciary rule will protect seniors from hidden fees buried in investment products. But financial companies fought hard to stop it and the threat to their sales; amid intense lobbying, Trump signed an executive order in February that asked the Labor Department to review the rule.

But with Washington now on the sidelines, states are plowing ahead with their own such regulations. In June, Connecticut and Nevada passed laws that created statewide fiduciary rules for brokers. Other states are considering similar legislation.

Those are hitting friction too: The Securities Industry and Financial Markets Association, one of the largest lobbying groups for financial companies, has opposed legislation modeled after NASAA’s proposal in Alabama and Louisiana; it wants the job to fall to Wall Street’s self-regulator, the Financial Industry Regulatory Authority. A FINRA rule that goes into effect in February will require brokers to stop cash disbursements to a senior if financial abuse is suspected.

“The states probably are going forward because they want to show they are engaged on this issue,” said Lisa Bleier, a managing director at SIFMA. But now with the FINRA rule, she argues, “there is really no need.”

NASAA’s members aren't sure a voluntary industry rule offers seniors the protection they need. Ultimately, as long as seniors are isolated, they’re going to be vulnerable—and given the ambitions of scammers at every level, seniors will likely need more than one layer of protection.

“I grew up in a small town in northern Maine,” said Shaw, the state’s securities administrator. “If my great-grandparents needed something they could turn to my grandparents, or my parents, or my aunts or uncles. Those types of communities are becoming more and more rare.”

“That social isolation contributes to making our population more vulnerable, certainly to scam artists, because they just sit there and answer the phone all day,” she said. “If I had one wish, it would be that we all call our parents at least as frequently as the scam artists do.”

Victoria Guida and Patrick Temple-West are financial services reporters for POLITICO Pro.

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