Help Seniors Fight Financial Fraud
A recent benchmarking study by the American Bankers Association (ABA) Foundation noted that, “Two out of every three bank depositors are over the age of 50, and collectively their accounts make up 70 percent of bank deposit balances.” This disproportionate concentration of wealth in a demographic that is both incredibly valuable to banks and highly susceptible to fraud presents a real challenge for financial institutions—one that calls for more protective measures.
In its March 2016 advisory, the Consumer Financial Protection Bureau (CFPB) noted that many experts consider elder financial exploitation to be the crime of the 21st century. There are a number of factors contributing to this ballooning epidemic.
First, older adults have considerable means because of decades of earning, saving and investing. Second, older adults are a growing segment of the population. According to the ABA, “By 2025, one in every five Americans will be over age 65.”
An Aging Population Offers Reward and Risk
Taken together, these two factors make seniors extremely valuable to financial institutions, but a third factor represents substantial risk: Older customers are more likely to be isolated and in poor mental or physical health than younger ones, making them particularly susceptible to fraud.
The Economist cites studies that “suggest financial decision-making ability tends to reach its peak in a person’s mid-50’s, after when deterioration sets in.” In addition to a decline in decision-making, that same research indicates that, “the older brain seems more susceptible to ‘too good to be true’ scams.”
Regardless of the circumstances, seniors with any amount of accumulated wealth make prime targets for fraud. True Link Financial estimates annual losses from such exploitation to be anywhere from $3 to $37 billion. Financial institutions are often liable for some or all of that loss. However, this does not mean that they should walk away from older customers. On the contrary, banks should engage this customer base in order to mitigate the risk to seniors and to themselves.
Here are four ways in which your institution can engage in this fight.
Train Staff to Spot and Report Elder Financial Fraud
Noting that “banks and credit unions are uniquely positioned to detect that an elder account holder has been targeted or victimized, and to take action,” the CFPB recommends that banks train all staff on elder financial fraud. The ABA study shows many banks are heeding that recommendation, with 71 percent of the study’s respondents requiring specialized fraud training for all front-line staff and customer service employees and 57 percent requiring it for all other bank staff.
The very nature of the relationship between seniors and their banks generates its own form of fraud protection, which can be weaponized through such training. The ABA points out that “Older customers are far more likely to know and be known by their bankers because they still visit the bank regularly.” In addition to training staff on the various types of elder financial fraud, teaching them to nurture such routine personal interaction with older customers enables them to take the lead in recognizing when something out of the ordinary occurs.
This nurtured relationship also elevates your staff to a place of trust to explain what is happening to older customers when fraud occurs. The ABA study emphasizes the importance of training staff on how to handle that conversation and how to deal with sensitive situations, such as abuse or fraud being perpetrated by a family member or caregiver. Finally, the ABA emphasizes that it is critical that institutions provide employees with appropriate procedures and tools to report fraud, which it says yields the added benefit of staff empowerment and elevated morale.
Be an Anti-Fraud Advocate for Your Customers and Community
Once your staff has been trained on elder financial fraud, they can pass on that knowledge to your older customers, which will empower them to protect themselves. Encouraging your staff to have that conversation during every interaction will help keep seniors alert to the danger. This knowledge transfer can take place during routine banking transactions in the following ways:
- Asking them if they’ve heard about the latest scams in your area
- Advising them about password security for online and mobile banking
- Offering to set up online or mobile banking and demonstrating safe practices
- Handing out a fraud-related brochure or flyer for them to take home
- Engaging in general conversation to learn about changes in their living situation
In addition to that interpersonal education, bank statement inserts can be another vehicle for elder fraud education. Unlike their younger counterparts, many older customers still choose to receive a paper statement and balance their checkbook the old-fashioned way. Because of that, they view their statement as official bank communication, and their monthly statement review is an ideal time to remind seniors how to identify and report unauthorized transactions.
The most effective elder fraud education programs go beyond these one-on-one customer conversations. The ABA indicates that “As pillars within the community, banks are naturally positioned to host or facilitate special events and training to help customers spot scams and understand fraud risks.” These can occur at the branch or out in the community in coordination with local law enforcement, retirement communities, nursing homes, civic organizations and churches. Bringing the message to seniors helps build your stature as a credible and trusted source.
To encourage and simplify this community advocacy, several organizations have developed educational materials for banks to use. These include Safe Banking for Seniors from the ABA Foundation, Money Smart for Older Adults by the CFPB and FDIC, and Pass It On by the FTC. The National Adult Protective Services Association is another good resource.
Design Products and Services Geared for Older Customers
Given the size and value of their older customer base, many banks are now designing products and services that cater to this demographic by fulfilling budgetary and transitional issues that seniors often face in retirement, such as:
- Free or reduced cost checking accounts
- Senior discounts on checks
- Favorable loan terms or accommodations that facilitate the migration to retirement living
- Sponsored social activities to alleviate isolation
- Planning for incapacity ahead of time
- Protective account features, such as withdrawal limits
- Convenience accounts that provide limited access to caregivers
Some banks have taken this idea a step further, recognizing the need to make these specialized services more convenient for older customers. The ABA says that “A select number of banks are bringing account services directly to their older customers with small branches in nursing home facilities or by providing special courier services to customers physically unable to visit a branch.”
Implement Robust and Up-to-date Fraud Defenses and Tools
Institutions that are not adequately armed and prepared for frequent cyber-intrusion attempts will be unable to protect any customers, much less older ones. To protect all of your customers, make sure that your institution actively reviews and accesses all areas of its overall security posture, including the following:
- Take an enterprise approach to risk management
- Ensure appropriate and up-to-date perimeter defenses, including a hardened firewall
- Deploy Web application security
- Conduct routine external penetration and social engineering testing to uncover vulnerabilities
- Maximize security activity reporting and other types of fraud reporting
In addition to strong defenses, many banks are taking advantage of fraud detection tools that use artificial intelligence to automatically learn and understand a particular consumer’s normal pattern of behavior and activity over time, so that it can detect irregularities that raise suspicion. This is a powerful weapon against fraud, particularly elder financial fraud. Older consumers are more likely to have set banking patterns, so such automated fraud tools can quickly and easily distinguish their legitimate transactions from potentially fraudulent ones.
The CFPB encourages “financial institutions to ensure that their fraud detection systems include analyses of the types of products and account activity that may be associated with elder financial exploitation risk.” It also calls for them to regularly review “their filtering criteria against individual account holders’ patterns and explore additional risk factors that may be associated with financial exploitation.”
Seize the Opportunity to Protect Against Elder Financial Fraud
There is no doubt that our industry is uniquely positioned to be a front-line defense and advocate against elder financial fraud. The CFPB is right in saying that, “Financial institutions have a tremendous opportunity to serve older consumers by vigorously protecting them from financial exploitation.” Seizing that opportunity creates a win-win for seniors and banks. Not seizing it puts your customers, as well as your reputation, financial condition and compliance stance, at significant risk.
Tyler Leet serves as director of Risk and Compliance Services for CSI’s Regulatory Compliance Group. With more than 15 years of experience in the information security, risk and compliance industries, Tyler oversees and participates in the development and maintenance of the risk and compliance-related services conducted for a wide variety of financial institutions and organizations.