Banks Will Have Greater Power to Prevent Financial Exploitation of Adults

Posted on by Neil E. McCullagh in Creditors' Rights, Bankruptcy and Insolvency

Effective July 1, 2019, Virginia law enhances the role banks can play in preventing financial exploitation of adults. Under current Virginia law, a bank may report suspected financial exploitation of an adult to the local department of social services or to the adult protective services hotline. However, during its recently completed session, the General Assembly amended Virginia Code section 63.2-1606 to provide that financial institution staff are authorized (a) to refuse to execute a transaction, (b) to delay a transaction, and (c) to refuse to disburse funds, so long as the staff -

(a) "believes in good faith that the transaction or disbursement may involve, facilitate, result in, or contribute to the financial exploitation of an adult"; or
(b) "makes, or has actual knowledge that another person has made, a report to the local department or adult protective services hotline stating a good faith belief that the transaction or disbursement may involve, facilitate, result in, or contribute to the financial exploitation of an adult."

The amended statute provides that use of this authorization is not contingent upon the financial institution staff having reported suspected financial exploitation of the adult to the local department of social services or to the adult protective services hotline. Further, the amended statute provides that "absent gross negligence or willful misconduct," the financial institution and its staff "shall be immune from civil or criminal liability" for using the authorization.

However, the authorization is not indefinite. In this regard, the amended law provides that staff may continue to refuse to act based on their good faith belief "for a period no longer than 30 business days after the date upon which such transaction or disbursement was initially requested ... unless otherwise ordered by a court of competent jurisdiction."

The amended law also permits financial institution staff to provide relevant information and records when reporting to the local department of social services or to the adult protective services hotline, but only "[u]pon request, and to the extent permitted by state and federal law." Current law does not include authorization to provide information and records.

To be clear, the amended law does not make financial institutions or their staff mandatory reporters of financial exploitation but simply expands the range of options available to them when they encounter suspected exploitation.

The amended law comes on the heels of the annual report of the Adult Protective Services Division of the Virginia Department for Aging and Rehabilitative Services, which shows that substantiated cases of financial exploitation of adults increased 30% during state fiscal year 2018, the largest increase in any category of adult abuse, neglect, or exploitation. The same report shows that financial institutions are among the leading reporters of adult abuse, neglect, or exploitation, having made 2,592 reports during fiscal year 2018, more than even law enforcement and hospitals. Only relatives, social workers, and anonymous reporters made more reports than financial institutions. A news release related to that report is here.

A number of definitions are relevant to the amended law. First, "adult" means a person who resides in Virginia and is either (i) 60 years of age or older, or (ii) 18 years of age or older and incapacitated; provided, however, that a person who is temporarily in Virginia and in need of temporary or emergency protective services may also qualify as an "adult." Second, "incapacitated" to means an impairment "by reason of mental illness, intellectual disability, physical illness or disability, advanced age or other causes to the extent that the adult lacks sufficient understanding or capacity to make, communicate or carry out responsible decisions concerning his or her well-being." These two definitions are included in Virginia Code section 63.2-1603.

Third, section 63.2-1606 defines "financial institution staff" to mean, in relevant part, "any employee, agent, qualified individual or representative" of the financial institution. Finally, effective July 1, section 63.2-1606 will include a definition of "financial exploitation", which is as follows:

"the illegal, unauthorized, improper, or fraudulent use of the funds, property, benefits, resources, or other assets of an adult, as defined in § 63.2-1603, for another's profit, benefit, or advantage, including a caregiver or person serving in a fiduciary capacity, or that deprives the adult of his rightful use of or access to such funds, property, benefits, resources, or other assets. 'Financial exploitation' includes (i) an intentional breach of a fiduciary obligation to an adult to his detriment or an intentional failure to use the financial resources of an adult in a manner that results in neglect of such adult; (ii) the acquisition, possession, or control of an adult's financial resources or property through the use of undue influence, coercion, or duress; and (iii) forcing or coercing an adult to pay for goods or services against his will for another's profit, benefit, or advantage if the adult did not agree, or was tricked, misled, or defrauded into agreeing, to pay for such goods or services."

This definition of "financial exploitation" is essentially identical to part of the definition of "adult exploitation," which applies under current law.

The definition of "financial exploitation" is clear that there can be exploitation even if the use of the adult's funds is not illegal, as the definition includes "unauthorized, improper, or fraudulent" use, in addition to "illegal" use. The words "unauthorized, improper, or fraudulent" were added to the definition of "adult exploitation" in 2017.

In other ways, however, the definition of "financial exploitation" is vague. For example, while the first sentence of the definition refers only to a "use" of the adult's funds, the examples of exploitation provided in the second sentence include "acquisition" of an adult's financial resources. Therefore, it seems that "use" of an adult's financial resources can include "acquisition" of those resources. In turn, this suggests that acquisition of financial resources through fraud, such as through an internet scam, constitutes "financial exploitation." On the other hand, the example concerning "acquisition" of financial resources refers to "undue influence, coercion, or duress" (i.e., pressure tactics) but not to fraud. Further, while the last example in the definition refers to fraud, it concerns an adult paying for goods or services for someone else, as opposed to transferring his funds to another person. In short, the definition of "financial exploitation" could have been written more clearly. Unfortunately, there are no reported court cases that address the meaning of the currently-applicable term "adult exploitation" and, therefore, that could be used to define the boundaries of "financial exploitation."

About the Author

Neil E. McCullagh is an attorney who works with banks on a wide variety of issues, including lending, insolvency, workouts, creditors' rights, bankruptcy, and collections.

Spotts Fain publications are provided as an educational service and are not meant to be and should not be construed as legal advice. Readers with particular needs on specific issues should retain the services of competent counsel.