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Financial Services Law Insights and Observations

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  • FinCEN issues warning on elder financial exploitation

    Federal Issues

    On June 15, FinCEN issued an advisory alerting financial institutions about the increase of elder financial exploitation (EFE). EFE involves the illegal or improper use of an older adult’s funds, among other things, and is often perpetrated either through theft or scams. According to the advisory, financial institutions filed 72,000 suspicious activity reports in 2021 related to EFE—an increase of 10,000 reports from 2020. The advisory provides updated typologies since FinCEN issued its first advisory on the issue in 2011, and highlights behavioral and financial red flags to aid financial institutions with identifying, preventing, and reporting suspected EFE. The announcement also refers to the risk-based approach to compliance under the Bank Secrecy Act, which provides that “[f]inancial institutions should perform additional due diligence where appropriate and remain alert to any suspicious activity that could indicate that their customers are perpetrators, facilitators, or victims of EFE.”

    Federal Issues Financial Crimes FinCEN Elder Financial Exploitation SARs Bank Secrecy Act

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  • Agencies file lawsuit in scheme targeting the elderly

    Federal Issues

    On February 1, the California Department of Financial Protection and Innovation (DFPI), along with the CFTC and 26 other state regulators, announced a complaint against a precious metals dealer and its owner (collectively, “defendants”) for allegedly perpetrating a $68 million fraudulent scheme against more than 450 individuals nationwide, specifically against the elderly. According to the complaint, the defendants allegedly utilized false statements on its website regarding the risk and safety of their traditional retirement accounts and used fear tactics to convince senior citizens to purchase the precious metals. The complaint alleged that the company violated the federal Commodity Exchange Act by targeting the elderly and advising them to dissolve their savings and traditional retirement accounts in order to purchase their highly inflated and overpriced products, and that defendants had misrepresented their credentials and advised customers that the products were “a safe and conservative investment.” The complaint seeks disgorgement, civil monetary penalties, restitution, permanent registration and trading bans, and a permanent injunction against further violations of the Commodity Exchange Act, state regulatory laws, and CFTC regulations.

    The same day, the SEC filed a complaint against the defendants in the U.S. District Court for the Central District of California for allegedly violating the antifraud provisions of the federal securities laws. The complaint seeks permanent injunctions, disgorgement, plus interest, and civil penalties.

    Federal Issues DFPI CFTC SEC Elder Financial Exploitation State Regulators Enforcement State Issues Courts Commodity Exchange Act

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  • CFPB bans payment processor for alleged fraud

    Federal Issues

    On January 18, the CFPB filed a proposed stipulated judgment and order to resolve a complaint filed last year against an Illinois-based third-party payment processor and its founder and former CEO (collectively, “defendants”) for allegedly engaging in unfair practices in violation of the CFPA and deceptive telemarketing practices in violation of the Telemarketing Act and its implementing rule, the Telemarketing Sales Rule. As previously covered by InfoBytes, the CFPB alleged that the defendants knowingly processed remotely created check (RCC) payments totaling millions of dollars for over 100 merchant-clients claiming to offer technical-support services and products, but that actually deceived consumers—mostly older Americans—into purchasing expensive and unnecessary antivirus software or services. The tech-support clients allegedly used telemarketing to sell their products and services and received payment through RCCs, the Bureau claimed, stating that the defendants continued to process the clients’ RCC payments despite being “aware of nearly a thousand consumer complaints” about the tech-support clients. According to the Bureau, roughly 25 percent of the complaints specifically alleged that the transactions were fraudulent or unauthorized. 

    If approved by the court, the defendants would be required to pay a $500,000 civil penalty, and would be permanently banned from participating in or assisting others engaging in payment processing, consumer lending, deposit-taking, debt collection, telemarketing, and financial-advisory services. The proposed order also imposes $54 million in redress (representing the total amount of payments processed by the defendants that have not yet been refunded). However, full payment of this amount is suspended due to the defendants’ inability to pay.

    Federal Issues CFPB Enforcement Telemarketing Elder Financial Exploitation Payment Processors CFPA Unfair Telemarketing Sales Rule Deceptive UDAAP Consumer Finance

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  • Chopra concerned about PE investment in nursing homes

    Federal Issues

    On December 7, CFPB Director Rohit Chopra spoke before the Elder Justice Coordinating Council Meeting and raised concerns regarding worsening fraud, neglect, and financial exploitation in nursing homes and other for-profit facilities. Chopra discussed that financial straits due to the pandemic would continue leading to increased nursing home closures or takeovers of nursing homes by private equity investors. He noted that typically, private equity investors purchase assets, often using significant amounts of debt financing, to increase profits prior to selling the asset in a short amount of time, and warned that, due to the short investment and need to escalate profitability, “this investment approach invites aggressive strategies that warrant regulatory scrutiny.”

    Citing to a recent NYU study that found private equity investments in U.S. healthcare to be on the rise, Chopra inquired whether for-profit incentives are misaligned with serving seniors well. He specifically warned that for-profit nursing homes “disproportionately lag behind their nonprofit counterparts across a broad array of measures for quality” and that “private equity owners may also have the incentive to drain financial assets from residents or increase risks of other financial exploitation.”

    In conclusion, Chopra noted that he had asked the Bureau’s Office of Financial Protection for Older Americans to “identify cross-cutting consumer protection issues, including when it comes to housing, as many older Americans with substantial financial assets are a target for bad actors,” and will be working “to find systemic fixes to emerging risks, such as the encroachment of private equity into facilities serving and housing America’s older adults.”

    Federal Issues CFPB Elder Financial Exploitation Consumer Finance Covid-19

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  • FTC reports on older adult fraud

    Federal Issues

    On October 18, the FTC issued its annual report to Congress on protecting older adults. Among other things, the report, Protecting Older Consumers, 2020-2021, A Report of the Federal Trade Commission, evaluates fraud trends impacting older adults and provides details on enforcement actions and efforts to combat scams related to the Covid-19 pandemic. According to the report, there were more than 334,000 fraud reports filed by consumers age 60 or older totaling more than $600 million in losses. While the FTC found that older adults were the least likely of any age group to report fraud monetary losses, older adults tended to report losing substantially more money than younger age groups. Older adults were also more likely to report financial losses related to tech support scams, prize, lottery or sweepstake scams, friend or family impersonation, and romance scams. Additionally, as online shopping has increased, the report noted that losses attributed to online shopping fraud among older adults rose sharply during the second quarter of 2020 and remained far higher than pre-pandemic levels in early 2021. The report also discussed significant FTC enforcement actions taken to protect older adults, as well as outreach and education efforts focusing on fraud prevention.

    Federal Issues FTC Consumer Finance Congress Covid-19 Elder Financial Exploitation Enforcement

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  • CFPB and FDIC release enhancements to financial education program for seniors

    Agency Rule-Making & Guidance

    On July 14, the CFPB and FDIC announced enhancements to Money Smart for Older Adults, the agencies’ financial education program geared toward preventing elder financial exploitation. The enhanced version includes sections to help people avoid romance scams, which, according to data from the FTC, led to $304 million in losses in 2020. In addition, the agencies are also releasing an informational brochure on Covid-19 related scams. FDIC training materials and other resources for older adults are available from the CFPB here.

    Agency Rule-Making & Guidance FDIC CFPB Consumer Finance Elder Financial Exploitation Covid-19 Bank Regulatory

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  • Securities regulators’ training aims to stop financial exploitation of seniors

    Agency Rule-Making & Guidance

    On June 15, the SEC, North American Securities Administrators Association (NASAA), and FINRA announced the release of a training program, “Addressing and Reporting Financial Exploitation of Senior and Vulnerable Adult Investors,” to assist securities firms in implementing the training requirements established in the Senior Safe Act. As previously covered by InfoBytes, the Senior Safe Act was included as Section 303 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, which was signed into law in May 2018. The Act addresses barriers financial professionals face in reporting suspected senior financial exploitation or abuse to authorities. The training program may be utilized by firms to instruct associated persons on how to detect, prevent, and report financial exploitation of senior and vulnerable adult investors. The program also acts as a resource for firms enforcing the requirements of the Senior Safe Act and certain state training requirements relating to senior investment protection.

    Agency Rule-Making & Guidance SEC FINRA NASAA Elder Financial Exploitation

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  • CFPB sues payment processor for fraudulent practices

    Federal Issues

    On March 3, the CFPB filed a complaint against an Illinois-based third-party payment processor and its founder and former CEO (collectively, “defendants”) for allegedly engaging in unfair practices in violation of the CFPA and deceptive telemarketing practices in violation of the Telemarketing Sales Rule. According to the complaint, the defendants knowingly processed remotely created check (RCC) payments totaling millions of dollars for over 100 merchant-clients claiming to offer technical-support services and products, but that actually deceived consumers—mostly older Americans—into purchasing expensive and unnecessary antivirus software or services. The tech-support clients allegedly used telemarketing to sell their products and services and received payment through RCCs, the Bureau stated, noting that the defendants continued to process the clients’ RCC payments despite being “aware of nearly a thousand consumer complaints” about the tech-support clients. According to the Bureau, roughly 25 percent of the complaints specifically alleged that the transactions were fraudulent or unauthorized. The Bureau noted that the defendants also responded to inquiries from police departments across the country concerning consumer complaints about being defrauded by the defendants. Further, the Bureau cited high return rates experienced by the tech-support clients, including an average unauthorized return rate of 14 percent—a “subset of the overall return rate where the reason for the return provided by the consumer is that the transaction was unauthorized.” The Bureau is seeking an injunction, as well as damages, redress, disgorgement, and civil money penalties.

    Federal Issues CFPB Enforcement Payment Processors CFPA Unfair Telemarketing Sales Rule Deceptive Elder Financial Exploitation UDAAP

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  • FinCEN report: SARs help prevent elder financial exploitation

    Federal Issues

    On December 4, FinCEN announced the release of a Financial Trend Analysis titled, “Elders Face Increased Financial Threat from Domestic and Foreign Actors.” In compiling the report, FinCEN reviewed Bank Secrecy Act (BSA) elder financial exploitation suspicious activity reports (SARs) from 2013 to 2019 to detect patterns and trends. Among other things, the study found that (i) elder financial exploitation filings nearly tripled during the study period, from around 2,000 per month in 2013 to nearly 7,500 in 2019, the majority of which were filed by money services businesses (MSBs) and depository institutions; (ii) while the amount of SARs filed by MSBs ebbed and flowed from 2013 to 2019, those of depository institutions steadily increased; (iii) MSBs filed nearly 80 percent of all SARs describing financial scams, while securities and futures firms filed just over 70 percent of all SARs describing theft; (iv) financial theft from elders is most frequently perpetrated by family members or caregivers; (v) SARs indicated that the most common scams included lottery, person-in-need, and romance scams, the majority of which saw elder victims transferring funds through MSBs; and (vi) money transfer scam SARs were most commonly filed by MSBs who transferred money to a receiver located outside the U.S.

    Federal Issues Money Service / Money Transmitters SARs Bank Secrecy Act FinCEN Elder Financial Exploitation Supervision Financial Crimes

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  • CFPB updates advisory on elder financial exploitation

    Federal Issues

    On July 17, the CFPB issued an updated advisory to financial institutions with information on the financial exploitation of older Americans and recommendations on how to prevent and respond to such exploitation. The update urges financial institutions to report to the appropriate authorities whenever they suspect that an older adult is the target or victim of financial exploitation, and recommends that they also file Suspicious Activity Reports (SARs) with the Financial Crimes Enforcement Network (FinCEN). The update builds on an advisory that was previously released by the Bureau in March 2016 (covered by InfoBytes here), which included recommended best practices to help prevent and respond to elder financial exploitation, such as (i) establish protocols for ensuring staff compliance with the Electronic Fund Transfer Act; (ii) train staff to detect the warning signs of financial exploitation and respond appropriately to suspicious events; and (iii) maintain fraud detection systems that provide analyses of the types of products and account activity associated with elder financial exploitation. With the release of the update, Director Kraninger noted that, “[t]he Bureau stands ready to work with federal, state and local authorities and financial institutions to protect older adults from abusive financial practices that rob them of their financial security.”

    As previously covered by InfoBytes, in February, the CFPB’s Office of Financial Protection for Older Americans, released a report studying the financial abuse reported in SARs, discussing key facts and trends revealed after the Bureau analyzed 180,000 elder exploitation SARs filed with the FinCEN from 2013 to 2017. Key findings of the report included, (i) SARs filings on elder financial abuse quadrupled from 2013 to 2017, with 63,500 SARs reporting the abuse in 2017; (ii) the average amount of loss to an elder was $34,200, while the average amount of loss to a filer was $16,700; and (iii) more than half of the SARs involved a money transfer.

    Federal Issues CFPB Elder Financial Exploitation SARs FinCEN EFTA Compliance

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