Compliance Blog

Financial institutions, including credit unions, have faced increased fraud risks (identity theft, scams, stolen, counterfeited and forged checks) as a result of the COVID-19 pandemic and the overall national crisis. Several federal regulators have shown their concerns throughout recently issued guidance and publications.

On March 16, the Financial Crimes Enforcement Network (FinCEN) released a statement to financial institutions concerning the COVID-19 pandemic. In the statement, FinCEN advised financial institutions to “remain alert about malicious or fraudulent transactions similar to those that occur in the wake of natural disasters.” FinCEN also identified imposter scams, investment scams, false investment opportunities scams, product scams and insider trading as emerging trends connected to COVID-19. You can read more in this NAFCU Compliance Blog.

Two days later, on March 18, the Federal Deposit Insurance Corporation (FDIC) warned consumers of recent scams with impostors posing as agency representatives and asking for bank account information or cash.

Also, on April 02, the Internal Revenue Service (IRS) issued a warning about C0VID-19 related scams, encouraging taxpayers to watch out for schemes tied to economic impact payments and to be on the lookout for a surge of calls and email phishing attempts about the COVID-19. In the statement the IRS states “[s]eniors should be especially careful during this period” and reminds retirees that “no one from the agency will be reaching out to them by phone, email, mail or in person asking for any kind of information to complete their economic impact payment/stimulus payments.”

When members of any age lose the capability to manage their finances, they are more susceptible to scams or fraud schemes or to be exploited by friends or family members. Elder members are probably the most susceptible portion of your membership during these challenging times because of their diminished financial capacity. They may also have some medical conditions such as Alzheimer’s or dementia, have trouble paying their bills or remembering balances, etc.  

In an article in the most recent issue of the Consumer Compliance Outlook  authors affiliated with the Federal Reserve Bank of Philadelphia created a list of six considerations “for financial institutions to help detect and prevent elder financial abuse”. Even though the list was not created to specifically address concerns during COVID-19, it provides a helpful list of changes and practices credit unions can consider implementing. Such changes could prove to be especially helpful during the ongoing national emergency and the increased risks posed by it:

1. Train frontline staff to identify and respond to signs of diminished financial capacity, elder financial fraud and exploitation. Member facing and customer service staff (including call center staff) are in a unique position to recognize the signs of diminished financial capacity, elder financial fraud and exploitation because of how much direct contact they have with your members. “Frontline staff, branch managers, call center employees, and others can be trained to recognize the signs of existing or imminent financial trouble. Effective training programs can help staff identify red flags, provide examples of elder fraud scams, explain what actions bank employees can take once suspicious activity is detected, and clearly delineate the roles and responsibilities of management and staff.”  Credit unions have access to free or low-cost resources and training through several institutions, such as the North American Securities Administrators Association’s (NASAA) Senior$afe Training program, and the Senior Investor Protection Toolkit from the Securities Industry and  Financial Markets Association (SIFMA).
2. Repurpose existing systems to detect unusual transactions. “Continuous monitoring and analysis of transaction data can help financial institutions identify, flag, and address unusual activity.” This does not necessarily mean getting new systems or technology. In many cases, existing software credit unions use for anti-money-laundering (AML) and fraud detection has capabilities that can be repurposed to detect elder fraud and abuse.
3.  Provide members and their financial caregivers with tools to assist them detect suspicious account activity. This isn’t a one size fits all solution and can vary from credit union to credit union. For example, the article explains that “by providing tools such as read-only access to online banking, convenience accounts (a special type of joint account), and suspicious activity alerts, [credit unions] can empower older customers and their financial caregivers to help monitor the older person’s accounts for signs of fraudulent or unusual activity.” Credit unions may want to evaluate options that could work for their membership.
4.  Prepare a trusted contact form for elder members and develop policies governing when an employee may reach out to the person listed on the form. It could be as simple as obtaining the name and contact information for a trusted contact to be used in cases in which, for example, an employee suspects a member is the victim of fraud. The credit union can reach out to someone the elder member trusts to try to convince the person to cancel a transaction (i.e. stop sending money to a scammer). “When reaching out to the trusted contact, consistent with relevant financial privacy laws, [credit union] staff members may be limited in what they may disclose. The information provided to the trusted contact may need to be as vague as “[credit union] staff has reason to believe that the account holder may be the current target of a scam — you might want to speak to the account holder to see if he or she will give details to aid you in providing helpful advice.”
5.  Institute policies to prevent an agent under a power of attorney from abusing the access to an older member’s finances. Credit unions can train member-facing staff to identify the potential power of attorney abuse and, when it is detected, to escalate the issue to a manager or supervisor.
6.  Report suspected financial abuse by a caregiver, trustee, guardian, or attorney-in-fact to local law enforcement and adult protective services (APS). Not reporting suspected abuse provides potential opportunities for the offender to steal additional savings. “This may also affect the victim’s ability to recover any of the stolen funds through the legal system, since it provides the perpetrator with more time to spend the stolen funds. After following the credit union’s internal policies and procedures for potential unusual activity, a sound practice is to report the suspected elder abuse to APS regardless of what is legally required.” Some states may have mandatory reporting requirements depending on what occurs.

Credit unions may consider implementing some of these practices to address elder financial abuse and defend the financial health of their senior members. It is important to note that the Economic Growth Regulatory Relief and Consumer Protection Act enacted in 2018 includes the Senior Safe Act (12 USC §34231), which provides a safe harbor to financial institutions, including credit unions, and certain staff against legal liability for reporting suspected elder financial abuse to authorities if certain requirements are satisfied. The latest Consumer Compliance Outlook also includes in its Compliance Spotlight section (page 14) a summary of the act.

Yesterday’s NAFCU Compliance Blog covers another of the articles in the recent Consumer Compliance Outlook about the most common compliance issues found over multiple years of Federal Reserve exams. Check it out!