Attacking Elder Financial Abuse

Recent news of the largest federal crackdown on elder fraud in U.S. history should send a powerful message to financial institutions: prevention of this growing problem is critical, and technology holds the key. Many were surprised by the scale of the law-enforcement actions announced Feb. 22, in which more than 250 defendants were charged in schemes that cost seniors over half a billion dollars. But to those of us who work in the field, it’s common knowledge that these cases are just the tip of an iceberg, and that financial fraud poses an ever-growing threat to older Americans.

In the 20 years I spent prosecuting these cases and overseeing the Elder Abuse Unit of the Manhattan District Attorney’s Office, I observed firsthand that criminals who defraud seniors typically fly under the radar. They understand that banks and investment firms often miss suspicious activity occurring across multiple accounts and that they don't analyze aggregated data from outside their own institutions.

A study in New York State found that only one in 44 cases of elder financial abuse is even reported. And so it’s no surprise that estimates of the overall cost vary enormously, from a few billion to tens of billions of dollars a year.  Complicating the problem is the rising prevalence of dementia, as our population grows older. Many of the victims I encountered as a prosecutor suffered from some degree of cognitive impairment, which increased their vulnerability. These crimes often drag on for years, as predators gradually siphon money out of multiple accounts.  And a great deal of money is at risk. Seniors hold over 70 percent of America’s wealth – trillions of dollars – and more people than ever are surviving into their 80s, 90s and even past 100. Yet one in three will die with some form of dementia, usually Alzheimer’s disease. 

Given these trends, financial institutions need to be proactive. Improved education and training of employees is a useful measure. But it is not enough. Much of the answer has to come from fintech. Financial institutions’ analytics can be improved to detect far more of these cases at the onset – well before a lifetime of savings is compromised. The Suspicious Activity Report (“SAR”), which is not shared with account holders, now has a flag box for Elder Financial Exploitation, which makes it easier for law enforcement to identify older victims. But current alerts and protocols related to customer due diligence should be enhanced to identify vulnerable seniors who may be at risk. Fraud algorithms that work for the average customer simply differ for those who are senior citizens. A simple example, and without being ageist: an ATM transaction at 2 am or the purchase of several iTunes gift cards may be normal for a 25-year-old customer, but perhaps not so normal for an 85-year-old. Technology involving machine learning can scale financial protection to meet the needs of older adults and their caregivers. It can establish a personal financial profile for individuals and then analyze activity—across checking, savings, investment, retirement, and credit card accounts as well as credit reports. Comprehensive alerts might suggest that fraud is occurring, or that there are issues to address related to the senior’s financial capacity—such as unpaid bills, missing regular deposits, or redundant charges. Suspicious activity alerts can be sent to seniors, as well as their designated trusted contacts—such as family members, professionals, or both. Effective monitoring should alert not just account holders, but financial caregivers—many of whom don’t reside with the senior but are willing to serve as an “extra set of eyes” from afar. 

There is an even more compelling reason for financial institutions to protect their customers from elder fraud. When I was a prosecutor, I saw that older adults often died shortly after being informed that they had been victims of financial exploitation. This observation is backed up by research, which has found that fraud in later life leads to a higher mortality rate than physical assault or domestic violence. By embracing technologies to protect our largest and fastest growing demographic, banks can ensure that our parents and grandparents age with their finances – and their dignity – intact.