It is not news to anyone that financial exploitation has been on the rise over the past several years. Individuals who are vulnerable due to limitations on physical or mental health, or advanced age, are especially at risk. It has long been recognized that critical front-line witnesses to financial exploitation are employees of financial institutions. An ongoing frustration has historically been the hesitancy of financial institutions (commonly banks and credit unions) to interfere with suspected exploitation or abuse. Financial institutions were understandably hesitant to interfere with transactions, as the financial institution could incur liability for limiting a customer’s access to funds under their account agreements. In rare circumstances, employees of such institutions would try to find workarounds to alert family, or to delay a transaction, but such steps were risky for the employee, even if taken with the best of intentions.
To address this issue, in September 2021, the Financial Exploitation Prevention Act (“FEPA”) went into effect in Michigan, aimed at putting protections in place to prevent the financial abuse of vulnerable adults. Under the statute, a Vulnerable Adult (“Vulnerable Adult”) is defined as, “an adult who, because of mental or physical impairment or advanced age, is unable to protect himself or herself from covered financial exploitation”.
Under the requirements of FEPA, financial institutions are required to have training and policies in place to help recognize signs of financial abuse and how to take action.
Pursuant to the statute, covered financial exploitation occurs when a transaction is “…performed through deception, manipulation, coercion, intimidation, or improper leveraging of a caregiver relationship…”, and involves one or both of the following:
- A fraudulent or otherwise illegal, unauthorized, or improper act or process of an individual who uses or attempts to use the financial resources of another individual for monetary or personal benefit, profit, or gain.
- A fraudulent or otherwise illegal, unauthorized, or improper act or process of an individual that results or is intended to result in depriving another individual of rightful access to or use of benefits, resources, belongings, or assets.”
If an individual improperly uses a Vulnerable Adult’s resources for the individual’s own benefit or improperly prohibits the Vulnerable Adult from having access to his or her own resources, exploitation has likely occurred.
The statute requires financial institutions to report suspected exploitation to either Law Enforcement or Adult Protective Services, depending on the circumstances, and allows the financial institution to freeze transactions for up to 10 days if exploitation is suspected. The financial institutions are provided with broad immunity from liability for actions taken because of suspected exploitation under this act.
We all know that no legislation is perfect. To paraphrase many wise philosophers: perfect is the enemy of good. The overall purpose of this legislation is to protect some of our most vulnerable citizens, and its enactment will hopefully stop many occurrences of financial exploitation. However, the broad immunity from liability may empower financial institutions to create overbroad reporting policies, which may result in the unnecessary freezing of assets and lead to frustration.
If a person who may be identified as vulnerable under this act is engaging in certain uncommon transactions, such as large withdrawals, or purchases, those transactions may be delayed if proper advanced discussion does not occur with the financial institution. This may put additional burden on the account holder and result in frustration all around. The best way to avoid this situation is for individuals to notify the financial institution ahead of time if an unusual transaction is planned and have an awareness of these new policies.