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State parliament wants to give banks tools to combat fraud against seniors

Fraud management and cybercrime, fraud risk management, legislation and litigation

With no help from the federal government in sight, six parliaments hope to stop suspicious transactions

Suparna Goswami (Subscribe) •
26 September 2024

Image: Shutterstock

With cyber fraud targeting seniors on the rise, at least four U.S. states are considering new laws to close the loopholes in fraud protections normally covered by the Consumer Financial Protection Bureau (CFPB). The bills would protect seniors by empowering banks to block suspicious transactions.

See also: Addressing payment verification challenges head-on


Pennsylvania House Bill 2064 would protect seniors from fraud by giving banks new tools to identify and stop fraudulent transactions. The Pennsylvania Senate is currently considering the bill, which is sponsored by the Attorney General and passed the House in July with strong bipartisan support.


Florida has already taken major steps to combat fraud. Earlier this year, Governor Ron DeSantis signed nine bills to protect seniors. The laws, which are set to take effect next January, allow financial institutions to delay transactions if they suspect a senior is being defrauded.


Other states, including California, Connecticut, Maine and Delaware, are currently preparing bills to counter the rise in scams targeting the elderly – and protect their citizens from losing their life savings to cybercriminals.


“Gangs steal billions of dollars from Pennsylvanians every year, often wiping out their life savings in the process,” said Nicholas Smyth, assistant attorney general at the Bureau of Consumer Protection. “House Bill 2064 would give banks the ability to block suspicious transactions and stop cybercriminals before they steal the first dollar,” he said in a recent LinkedIn post.


These states are moving forward with the banks because, in an election year, the federal Consumer Financial Protection Bureau (CFPB) is unlikely to propose new regulations to combat online fraud and money laundering. The bureau's Regulation E requires reimbursement for unauthorized electronic transfer payment fraud, but Regulation E and the CFPB are largely silent on reimbursement for authorized online payment fraud.


While it's encouraging to see individual states taking action, a patchwork of laws could complicate things for financial institutions. “It's going to be harder for banks to handle each state a little differently and deal with the different requirements,” said Ken Palla, a fraud expert and former director of MUFG Bank.


Seniors targeted by identity fraud


The scale of scams targeting seniors is increasing. The Internet Crime Complaint Center's 2023 report found that identity fraud alone resulted in over $1.3 billion in losses, and nearly half of the victims were over 60 years old. In total, seniors filed 101,068 complaints in 2023, with total losses reported of $3.4 billion.


The states with the most complaints include Washington, Michigan, Illinois and Pennsylvania.



Image: IC3 report, 2023


Image: IC3 report, 2023

Liabilities to banks


A closer look at the state bills addressing elder fraud reveals that while the overall wording is similar, there are differences in the level of liability for banks.


Pennsylvania legislation would require financial institutions to report any suspected elder financial exploitation. It allows and encourages financial institutions to hold back a transaction if they suspect elder financial exploitation. If banks don't stop the transaction, they could be required to repay.


Maine's bill requires financial institutions to delay or refuse to process transactions and could be held liable if they fail to do so.


Other states have eliminated banks' civil liability. Financial institutions in California, for example, must implement a monitoring program by January 1, 2026. Institutions that fail to implement such controls, which apply only to transactions involving a bank employee, will be liable for losses from fraud if they are found to have “recklessly disregarded” the law. The California bill also includes a safe harbor provision that protects banks from civil liability if they delay transactions that turn out to be legitimate.


In Connecticut, the law authorizes, but does not require, banks to suspend transactions of customers over 60 if there is a “reasonable suspicion of financial exploitation” or possible theft from their accounts. Banks must report the concerns to the state's banking or welfare office for investigation.


At the same time, banks are receiving legislative support to combat fraud. But this flood of state laws will add further complexity to banks' compliance departments and raises questions about how regulations will be enforced for banks that serve customers in states like Pennsylvania but are based elsewhere, and vice versa.


Unless the CFPB decides to take matters into its own hands, the situation will be similar to that of banks in the US, which have to comply with the different data protection laws of different states.


Missed opportunity


Most new federal regulations and laws have stalled in Washington ahead of the U.S. presidential election in November, and the CFPB appears to have missed a critical opportunity to protect seniors from fraud. While the agency has considered making banks more accountable for protecting seniors from fraud, it has not taken any proactive steps to date.

“State law now gives banks the ability to impose additional controls. The CFPB could have easily done that. The election is irrelevant here. The CFPB can act now if it wants to,” Palla said.

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