House passes bill to protect elderly, vulnerable Americans from financial exploitation

The House on Monday passed a bipartisan bill that aims to prevent the financial exploitation of elderly and disabled Americans by scammers amid a surge in such crimes that have impacted one in five senior citizens.

Introduced by Rep. Ann Wagner, R-Mo., the Financial Exploitation Prevention Act would allow a registered open-end investment company like those that operate many mutual funds to delay the redemption period of a security if they reasonably believe it was requested through the financial exploitation of a senior citizen over the age of 65 or a person with disabilities who cannot protect their interests. The House passed the bill on a 419-0 vote Monday evening.

"Sadly, about one in five senior investors fall prey to financial fraud, and those investors lose an estimated $2.9 billion annually in reported cases," Wagner said in remarks on the House floor. "However, according to the National Adult Protective Services Association, only one in 44 cases is ever even reported."

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"This legislation would codify both a FINRA and SEC-issued no-action letter from 2018 that permits a mutual fund and its transfer agent to delay the redemption period of a security if they reasonably believe a request was made by exploiting seniors or other vulnerable adults. It does not stop this trade from going through, it just takes a pause while they check with that senior to make sure that there hasn't been fraud or elder abuse," she explained.

Under the bill, the company could initially delay redemption for up to 15 days and then an additional 10 days if they determine there was financial exploitation. It would also require the Securities and Exchange Commission (SEC) to make legislative and regulatory recommendations to prevent the financial exploitation of elderly and vulnerable adults.

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Current federal law prohibits a fund's transfer agent who suspects financial exploitation from delaying the disbursement or redemption of funds while an investigation occurs. However, the SEC and the Financial Industry Regulatory Authority (FINRA) issued a letter in 2018 informing financial firms that the agencies wouldn't take adverse action if they delay a transaction suspected of being financial exploitation.

The Financial Exploitation Prevention Act would codify that policy into law, giving financial firms a greater level of assurance that they can take action to pause suspicious transactions while investigations occur into possible financial exploitation.

House Financial Services Committee Chairman Rep. Patrick McHenry, R-N.C., spoke on the floor in support of this bill and noted that it was the first legislation advanced by his committee in the new Congress. He also thanked Ranking Member Maxine Waters, D-Calif., who also spoke in favor of the bill, for the bipartisan support for the legislation.

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The bill now heads to the Senate where it faces an uncertain fate. During the last Congress, a prior version of the Financial Exploitation Prevention Act passed the House on a voice vote but wasn't considered by the Senate before the session ended.

The Treasury Department's Financial Crimes Enforcement Network (FinCEN) noted in an advisory on elder financial exploitation issued in June 2022 that the "majority of incidents go unidentified and unreported as victims may choose not to come forward out of fear, embarrassment, or lack of resources."

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FinCEN explained further that "Older adults are targets for financial exploitation due to their income and accumulated life-long savings, in addition to the possibility that they may face declining cognitive or physical abilities, isolation from family and friends, lack of familiarity or comfort with technology, and reliance on others for their physical well-being, financial management, and social interaction."

According to the FinCEN report, more than 62,000 suspicious activity reports related to elder financial exploitation were filed in 2020 that the Consumer Financial Protection Bureau estimated to be valued at $3.4 billion – an increase from $2.6 billion in 2019.