Compliance

Senior Scams

CU looks out for WWII veteran.

October 23, 2009
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Seniors get fleeced out of billions of dollars every year—and most of it goes unreported.

John Whittaker, Antioch, Calif., thought he had a friend in Joe Gonzales. But that was before Gonzales depleted the 82-year-old, World War II veteran’s bank accounts, running through more than $100,000 of Whittaker’s savings. (“CU looks out for World War II vet,”).

In another sadly familiar case, a 78-year-old Michigan woman found her bank account nearly empty and rent unpaid for months after turning over control of her finances to a granddaughter.

Credit unions are the nation’s most trusted financial service providers. That trust is a valuable commodity, and a not-so-new demographic group needs it: seniors.

Nearly one of five U.S. residents will be 65 or older in 2030, according to U.S. Census Bureau estimates. And this age group will more than double by 2050, from 39 million today to 89 million. Among credit union members, nearly one-third are 55 or older, and 13% are 65 or older, reports the Credit Union National Association’s (CUNA) 2009-2010 National Member Survey.

People 65 or older account for 70% of U.S. households’ net worth, and they control nearly $15 trillion in assets. And those between the ages of 65 and 75 have the highest percentage of discretionary income of any 10-year age segment, making them the largest and wealthiest age group.

And where there’s money, criminals are sure to follow. Financial exploitation of seniors is one of the top three classes of elder abuse—and the fastest growing—behind self-neglect and caregiver neglect, according to the National Center on Elder Abuse.

People age 60 or older make up 15% of the population but represent 30% of the nation’s fraud victims, says the North American Securities Administrators Association. And the financial loss by victims of elder financial abuse is at least $2.6 billion annually, according to a study by the MetLife Mature Market Institute, the National Committee for the Prevention of Elder Abuse, and the Center for Gerontology at Virginia Tech.

The study suggests that for each case of abuse reported, an estimated four or more go unreported. So widespread is the abuse of seniors that the U.S. Senate Special Committee on Aging reports as many as five million older Americans might be victims of abuse, neglect, and/or exploitation every year.

Why seniors are vulnerable
Exploitation happens every day and in many different markets, including new immigrants, minorities, poorly educated, and the poor. But the senior market stands out because of its size and its relative wealth.

 Seniors are vulnerable for many reasons:

  •  Cognition. Nearly half of the people in the 65-plus age group experience some problems with cognition, increasing the chances they might sign documents they don’t understand;
  • Poverty. Nearly one of 10 seniors lives below the poverty line, making them more likely to take ill-advised chances;
  • Loneliness. This often makes men and women receptive to the friendship of an often younger person or family member;
  • Inexperience. Many victims just don’t have experience making financial decisions, which makes them more willing to trust the advice of others. Or they might lack experience with new technologies, making them prime targets for Internet scams.

Elder financial abuse takes many forms, the most common of which are:

  • Coupon, telemarketing, and mail fraud;
  •  Repair and contracting scams;
  • Sweetheart scams;
  • False or fraudulent financial advice from loan officers, stockbrokers, insurance salespeople, and accountants;
  • Abuse of powers of attorney and guardianship;
  • Identity theft and Internet fraud; and
  •  Medicare and Medicaid fraud.

“Crooks employ devious ways to con people,” says Joanne Sepich, CUNA’s director of ancillary and promotional products. “Some crooks present seniors with fake lottery checks and tell them the checks are advance payments on purported winnings. The seniors are then instructed to cash the checks and wire a sizeable portion of their ‘winnings’ back to the issuer to secure the rest of the winnings. By the time the check is determined to be bogus, the crook is long gone.”

These checks look authentic to unsuspecting and trusting seniors, such as a Wisconsin couple who recently avoided a scam thanks to their vigilant children. About 41% of reports last year to its fraud hotline and Web site were about fake check scams, according to the National Consumers League.

These scams come from every corner of the globe. The U.S. Postal Inspection Service reports that nearly 230,000 pieces of fake check mail—with checks totaling more than $1.5 billion—were collected in Dallas-Fort Worth between June 2007 and June 2008. And that’s just one location and only a fraction of the total.

The Wisconsin couple were lucky. Their children were watching out for them. But that’s not the case for many fraud victims. Family, friends, neighbors, and caregivers accounted for more than half the abuse cases the media reported and MetLife studied. Strangers and financial professionals accounted for nearly 25% of the fraudsters.

A lot of fraud numbers are really educated guesses because so much fraud goes unreported, says Sepich. “Educating seniors and making them aware of the threat is the best defense.”

Typical victims
The typical victim of elder financial abuse is a white female, over age 70, frail, and cognitively impaired. Many victims are lonely, having been widowed or isolated from their families. Desperate for attention and friendship—as well as financial advice—they become the perfect targets for scam artists.

While many victims are poor or uneducated, others aren’t. Investment fraud victims are often more financially literate than nonvictims, but are especially susceptible to sales pitches tailored to match their psychological needs, according to a study from the National Association of Securities Dealers Investor Education Foundation.

Many seniors just don’t understand today’s sophisticated financial world and are looking for help from investment advisers. Unfortunately, many of those advisers offer complicated investment tools that don’t fit seniors’ retirement needs or life expectancy. Investment advisers are supposed to follow “suitability” standards and sell products that are appropriate given a person’s age, income, or liquidity needs. But many of them don’t.

The Senate’s Special Committee on Aging notes “so-called senior financial investment specialists often earn designations simply by attending a weekend seminar and passing an open-book, multiple-choice test.”

As a result of the growing concern for seniors, bills have been introduced in Congress, including the Senior Investor Protections Enhancement Act, which would impose increased penalties on people who commit financial crimes against seniors.

How to protect seniors
Sheldon Reynolds, vice president for trusts and investments for the Members Trust Company, a Tampa, Fla., credit union service organization, recognizes the issues facing senior consumers.

The company’s senior protection program suggests consumers look for financial planners with a certified financial planner designation—a rigorous accreditation that covers the full spectrum of financial money management. And when it comes to looking into trust issues, a topic especially important to seniors, Reynolds says to look for CTFA (certified trust and financial adviser) and ATFA (accredited trust and financial adviser) designations.

Members Trust Company provides its senior protection program as a value-added service for credit unions that use its services, which include trust services, investment management solutions, and reverse mortgage solutions. “We’ve created a number of educational tools for front-line staff,” says Reynolds, advocating that “credit unions should consider offering an option for senior members to appoint a senior account protector. This person would receive copies of statements, ask questions about suspicious account activity, and act as a designated contact person,” if financial abuse is suspected. The senior account protector, however, should not have an ownership interest in the account or withdrawal rights.

The importance of protection services for seniors is critical. About 20% of your members control about 80% of your deposits. These members are likely to be older—they’ve had a lifetime to accumulate their assets. Don’t you want to protect them?

“Only about 16% of elder abuse is reported, and 30% of reported cases involve financial abuse,” says Jan Garkey, CUNA’s consumer specialist. “And the Senate Special Committee on Aging has concluded that seniors are more concerned about fraud than health care or terrorism. That alone should prompt credit unions to think about developing a senior security program.”

“Credit unions should provide information, motivation, and the resources to enable your credit union to be recognized as a senior-friendly financial institution,” suggests John Franklin, executive vice president and chief operating officer of CUNA’s Madison, Wis., office. “Credit unions can position themselves as safe havens for seniors by providing scam alerts, budgeting information, online bill pay, direct deposit, and specialized products for seniors such as estate planning, trust services, wills, supplemental Medicare and Medicaid insurance, long-term care insurance, reverse mortgages, and identity theft products.”

CUNA’s consumer specialists offer these tips to help credit unions develop senior protection programs:

  • Start with a comprehensive financial education program for adults. Many of the problems start with seniors not understanding their finances, budgets, or options.
  • Educate front-line staff about the signs of financial abuse. These include unusual fear or submissiveness, uncharacteristic nonpayment for services, undue anxiety about personal finances, new “best friends” exerting undue influence in decision making, or sudden changes in spending or financial management. Front-line staff also can explain to senior members what it means to add someone to an account.
  •  Identify internal procedures and protocol for reporting potential abuse. Have a staff person who will follow up with authorities. Make sure you know about adult protective and long-term care ombudsman programs, family-care supports, and home and community-care services in your area.
  • Communicate with senior members about what you’re doing to support them. Having a program doesn’t help if no one knows about it. Keep them informed about legislation in Congress. Provide information on your Web site with links to Social Security information. Encourage them to consider a trusted senior account protector. And check to see if your state has a uniform power of attorney act. This means that legal documents must contain a clear statement of who has authority to sign for an older person, and it includes strict requirements for handling so-called “hot powers” such as altering an estate plan.

There’s a lot credit unions can do for their senior members, notes Sepich. “If you don’t have a program, it’s time to start.” 

CU LOOKS OUT FOR WORLD WAR II VET
Joe Gonzales befriended 82-year-old John (Jack) Whittaker—a World War II veteran who lived alone in Antioch, Calif.

And then he methodically proceeded to drain four bank accounts and run through more than $100,000 of Whittaker’s savings. He also stood to inherit the man’s home and annuities he persuaded Whittaker to buy from a shady associate.

But Whittaker, a member of $28 million asset Delta Schools Federal Credit Union in Antioch, found real friends in credit union CEO Rob Greaff and his staff.

A $23,065 wire transfer was made from Whittaker’s savings account. When Whittaker visited the branch the next day to make a withdrawal, he discovered the money had gone to purchase an annuity he knew nothing about. Greaff worked with the insurance company to reverse the transfer, according to the Contra Costa Times.

The credit union then set up an eight-month surveillance on Whittaker’s account. When he came in to make a $500 withdrawal, the teller asked him what he wanted it for. Whittaker didn’t know, just thathe had to give it to somebody.

Gonzales frequently accompanied Whittaker to the credit union, claiming to be his caretaker. Greaff didn’t buy the story, and went to authorities with his suspicions, and now Gonzales is serving time for elder theft.

The district attorney’s office applauded the credit union staff’s vigilance. “This was a group effort,and I’m very proud of my staff. Because of our efforts, the criminal received 10 years in prison,” Greaff says.

The credit union’s actions took place before California’s Financial Elder Abuse Reporting Act went into effect, requiring all financial institution employees to contact the police department or adult protective services if they suspect anelderly person is a fraud victim.

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