Crisis Management: Safeguards to Protect Against Financial Elder Fraud

In an era where digital transactions are becoming increasingly prevalent, the mechanisms by which financial institutions inform customers of potential fraudulent activities are under scrutiny. Recently proposed revisions seek not only to bolster security measures but also to ensure that customers are promptly and clearly notified, thus minimizing the risk of financial loss.

Possible Changes to Bank’s Notice of Suspected Fraud Under Review

On the first day of the 2024 New Jersey legislative session, Assembly Bill No. 1832 was introduced and referred to committee. If approved as enacted, A1832 would require financial institutions to release financial records to adult protective services if there is suspected fraud of a vulnerable adult or senior customer. It would also permit adult protective services to release these records to law enforcement, where necessary.

While similar bills were previously introduced in both the state Senate and Assembly in prior legislative sessions, this potential change to New Jersey’s “Blue Sky law” under N.J.S.A. 17:16T-1 is significant because it potentially changes the financial institution’s right to release financial records (with immunity from liability) from a permissive right (“may”) to a mandatory obligation (“shall”).

A “vulnerable adult” is very broadly defined to include anyone at least 18 years old, who lives in a home or community setting, who appears to have a physical or mental illness, disability, or deficiency, or lacks a sufficient understanding of and the capacity to make, communicate or carry out decisions concerns the managements of the customer’s resources or for whom the institution is currently or has previously acted as a fiduciary with respect to the vulnerable customer’s account.

And a “senior customer” is defined as one who appears to be at least 60 years old, who previously or is currently utilizing any service of the institution or for whom the institution is currently or has previously acted as fiduciary with respect to an account in the senior’s name.

New Jersey’s “Blue Sky” law at N.J.S.A. 17:16T-1 sets forth certain declarations related to the purpose underlying enactment of the law by noting that some customers are vulnerable to fraudulent or other illegal schemes because of advanced age, illness or disability, or because they lack sufficient understanding or capacity to make and carry out decisions. Financial institutions may hesitate to act on suspected fraud due to uncertainty about disclosing customer account information. N.J.S.A. 17:16T-4 further provides that any financial institution, officer, or employee is provided immunity from liability for disclosing information, failing to notify the customer of any disclosure, and also for determining, in good faith, not to disclose information regarding suspected fraud that it is permitted to be disclosed under the statute.

In a case of first impression in Lucca v. Wells Fargo Bank, N.A., 441 N.J.Super. 301 (Law Div. 2015) the New Jersey Superior Court considered the plain language and legislative history of N.J.S.A. 17:16T-3 in a private cause of action against Wells Fargo. In Lucca, an 82 year old woman was defrauded by a scammer she did not know who contacted her by phone claiming to be a lawyer who could help her win money. The scammer instructed her to make 27 wire transfers in the sum of nearly $300,000 over a six-month period. Wells Fargo suspected a scam, informed their client, and reported internally but did not inform the police or adult protect services. Plaintiff could not recover the funds and a lawsuit was filed against Wells Fargo. The court concluded that the permissive language of N.J.S.A. 17:16T-1 does not impose an affirmative duty on a financial institution to notify the authorities of a suspected scam. Rather, the statute is discretionary, as “[t]he term “may” implies a permissive action, not a mandatory action.” Id. at 311. By contrast, and while section 409 of the Adult Protective Services Act, N.J.S.A. 52:27D-409(a), requires that certain health care and other professionals report when there is a reasonable cause to believe a vulnerable adult is subject to exploitation, other individuals and entities, such as the Wells Fargo bank in this case, are not subject to such a mandate. Id. at 313.

Watch to see if New Jersey mandates  financial institutions to report suspected elder fraud, changing it from optional to obligatory.

Notice and Delay Under SAFE Act

New Jersey also currently operates under a permissive “report and hold” law under its “Safeguarding Against Financial Exploitation Act” (also known as the “SAFE Act”) set forth at N.J.S.A. 49:3-84.

This law provides that any broker-dealer, agent, investment adviser, or representative who reasonably believes that financial exploitation of an eligible adult (over age 65 years or one who is subject to the Adult Protective Services Act) may have occurred, may have been attempted, or is being attempted, shall promptly notify adult protective services as well as any third party who was previously designed by the eligible adult. (Many institutions will call this designated third party a “trusted contact”.)

The SAFE Act also provides that any investment advisor may also notify any third party “reasonably associated” with the eligible adult. (While the Act does not so clarify, this could be a joint account holder, trustee, guardian, other individual named under a Power of Attorney). Several states have further expanded the definition of those “reasonably associated” to include immediate family members.

The investment advisor may also delay any transaction or disbursement from the eligible adult’s account for up to 25 days (which can be extended by order of the court) and shall provide copies of relevant records regarding the suspected or attempted financial exploitation to adult protective services and to law enforcement. N.J.S.A. 48:3-89. See also, FINRA Rule 2165 (Financial Exploitation of Specified Adults) which similarly permits brokers and financial advisors to provide notice and place a temporary hold on a securities transaction or the disbursement of funds when they have a reasonable belief that financial exploitation of an adult has occurred, is occurring, has been or will be attempted.

What Can You Do in Advance to Protect Elders Against Financial Fraud?

Trusted Contact

Consider designating a person to serve as a “trusted contact” on your accounts. Inquire about the bank’s “trusted contact” policy, the type of information that will be shared, how that person will be contacted, and whether multiple people can be listed. To ensure greater oversight, perhaps the individual you designate as your “trusted contact” is different than the individual who has as a joint ownership interest, access to your computer/electronic banking, or control over your accounts as your Power of Attorney.

Durable Power of Attorney

Put in place a durable financial power of attorney, naming someone that you trust who can continue to manage your financial affairs in the event of your incapacity. Strongly consider naming alternate individuals to serve in the event that the first agent you have designated has died or is otherwise unable to act.

Place Assets into Trust

Talk with your attorney about the different types of trusts that are available to both protect your assets and identify a Trustee to oversee and manage your assets. While a testamentary trust can be created for beneficiaries under your Last Will and Testament, trusts may also be set up and funded during your lifetime, in the event of your incapacity, or even to shelter assets from spend down on long term care/nursing home expenses.

Guardianship

Where an individual is incapacitated and subject to financial exploitation, a guardianship complaint can be filed to remove legal liability and account access. A guardianship complaint statutorily requires the inclusion of two recent physician examinations and certifications from them attesting to the individual’s incapacity. However, where an alleged incapacitated person refuses or is unwilling to submit to a medical examination, there exists a limited ability under N.J. Court Rule 4:86-2(c) to include an “Alternative Affidavit” by a physician attesting to the circumstances regarding the refused examination and requesting relief by the court to compel a medical examination to support the guardianship complaint.

What if Financial Fraud is Already Suspected? 

Immediately Provide a Notice to the Bank

Under the Electronic Fund Transfer Act (EFTA) and Regulation E a consumer’s liability for an unauthorized Electronic Funds Transfer (EFT) may be capped at a maximum of $50, if notice to the bank is provided within 2 business days of learning of the theft/loss, or up to $500 if notice is untimely. However, if a consumer fails to provide notice to the bank within 60 days of receiving a periodic statement showing the unauthorized EFT, a consumer may have unlimited liability after the 60 day period.  12 CFR Sec. 1005.6 and 1005.11

Send Request to Freeze Bank Account

Engage legal counsel to contact all banks and financial institutions requesting that accounts be temporarily frozen/delayed under the SAFE Act to due suspected elder financial fraud.

Contact the Authorities

File a complaint with your local police department. Call the Elder Fraud Hotline within the Department of Justice at 833-FRAUD-11 (833-372-8311). Report suspected cyber fraud to the FBI’s Internet Crime Complaint Center (IC3).

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