Financial Fraud and Older Americans

Kelly May

Kentucky Department of Financial Institutions

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What Is DFI?• Department of Financial Institutions – state regulator

– Securities Division – investment advisers, brokers, issuers, offerings

– Nondepository Institutions Division – mortgage lenders and individuals, check cashers, other lenders, money transmitters

– Depository Institutions Division – state-chartered banks, trusts, credit unions

• Licenses and registers firms and individuals• Conducts examinations• Investigates complaints or potential fraud• Provides educational materials for consumers

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Seniors Are Targets• 31% of all securities enforcement actions involve

senior investment fraud• Seniors have built up savings – and con artists know it• Large population – Baby Boomers• Aging affects everyone

– EIFFE Prevention Program– Goal = to train physicians, adult protective services

professionals and senior caregivers to identify and assist those individuals at risk of elder investment fraud due to mild cognitive impairment

– http://kfi.ky.gov/public/Pages/eiffe.aspx

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Why Seniors Are Victims• Top behaviors that put those age 50+ more at risk:

– Opening and reading all junk mail– Attending free lunch seminars– Entering drawings to win a free prize– Inviting salespeople into the home

• Older fraud victims more likely to do these activities• Scams are underreported – only 25% of victims 50+• Victims 55+ were significantly

– Less likely to acknowledge they were defrauded – Less likely to report victimization

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Financial Abuse Has CostsNational1 in 14 cases reported – abuse/neglect1 in 25 cases reported – financial exploitation

More frequently committed by family/caretakersIncrease in age also increases likelihood

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Most Common Types of Abuse

26.7% Self Neglect

23.7% Caregiver Neglect

20.8% Financial/Material Exploitation

13.6% Emotional/Psychological

12.5% Physical

0.7% Sexual

2% Other

Financial Abuse Has CostsNational• More than 7.3 million older Americans have been

victimized by a financial swindle• That’s 1 in 5 citizens over age 65!

Kentucky45,048 reported cases of abuse or neglect in 2007

How It RelatesMultiple forms of abuse may occur simultaneouslyReporting one type may uncover moreIf family/caregiver is culprit, it’s up to someone

else to report it

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What Is Financial Exploitation?• KRS 209.020(9)

– “Obtaining or using another person’s resources, including but not limited to funds, assets, or property, by deception, intimidation, or similar means, with the intent to deprive the person of those resources”

• Financial exploitation is one form of elder abuse– May include securities fraud and lending fraud

• Mandatory reporting of elder abuse– 800-752-6200– It’s the law

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Signs of Abuse/ExploitationMail piled up, unpaid billsSudden/unexplained banking behavior changesBank accounts emptiedAbrupt changes in a will or financial documentDisappearance of funds/valuablesNew companion, adviser or power of attorney making

financial decisionsCaregiver paid too much or too oftenExcitement about winning sweepstakes/lottery

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What Are Securities?• Securities are documents/contracts that establish an

investment that is expected to profit in some manner• Securities fraud takes many forms:

– Fraudulent product/offering– Unsuitable investments for investor– Unlicensed adviser/broker– Unregistered product– Theft/misappropriation of funds

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Common Investment Fraud SchemesUnsuitable investmentsPonzi Scheme – Madoff and othersOil and gas scams“Free-lunch” seminarsInternet scams/social networking scamsUnlicensed individuals/unregistered productsAbusive sales practicesFraudulent productsAffinity fraud

- Scam technique- Preys upon members of identifiable groups- Relies on trust

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Affinity Fraud

Video clip from “The Lure of Money,” as used in the DFI-produced “Buyer Beware” 11

Problematic Lending• Any of a number of fraudulent, deceptive,

discriminatory or unfavorable lending practices. • Some of these practices are illegal, while others are

legal but not in the best interest of the borrowers.

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Illegal Lending• Advance fee schemes

– Advertise online or use regional trade publications – Company requests a payment up front for the “first payment”

or “insurance”– No loan is provided– The up-front payment cannot be recovered

• Internet payday loans• Internet consumer installment loans

– Neither of these are licensed in Kentucky– Kentucky law states that an unlicensed lender is not entitled

to receive any form of payment– DFI may issue a “cease and desist” on the borrower’s

behalf

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Legal (But Costly) Lending• Store-front payday lenders

– Sold as short term solution– High interest rate – triple digit APR– Kentucky requires a check to be presented at the business

• Debt settlement companies– Companies advertise that “you can be debt free in 36

months” or “we can reduce your loan debt by up to 50%”– Enrolling in debt settlement programs typically worsens

financial situation• Reverse mortgage products

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Reverse Mortgages• Home Equity Conversion Mortgage or HECM• Home equity is exchanged for cash• Loan balance increases – interest and fees are added

to the principal balance monthly• Does not require repayment during the borrower’s

lifetime• Who qualifies?

– 62+, reside in home, have substantial equity• Costs:

– Origination fee, third party charges, mortgage insurance premium, interest, servicing fees

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Reverse Mortgage Tips• Do not decide about a reverse mortgage alone• Beware of someone pushing a reverse mortgage who tells

you what to do with the proceeds• Understand the terms & know your alternatives• Beware of “limited time only” offers• Do not deal with an unlicensed lender• Do not sign documents you don’t understand or that have

incorrect information• Do not provide false information to qualifyFor More Information:

– AARP: www.aarp.org/money/credit-loans-debt/ – FTC: www.consumer.ftc.gov/ – HUD: http://portal.hud.gov/hudportal/HUD?src=/

program_offices/housing/sfh/hecm/rmtopten

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Red Flag “Promises”• Profit guaranteed!• High return – no risk!• For YOU only• Today only (“limited time”)• Pay a fee now to “secure” the deal (advance payment)• “Cash only”• Make the check out to me• I’ll get you the paperwork later• Trust me! (affinity fraud)

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Other Red Flags• Offers too good to be true• Inability to contact a company representative with

questions• Charging a fee for credit counseling/repair• Requesting personal information over the

phone/Internet• Unlicensed lenders, advisers or brokers

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How to Avoid Scams – 4 Easy Steps1. End calls

– Register on Do Not Call List www.donotcall.gov – Be skeptical of unsolicited calls

2. “Just say NO”– Have a refusal script/plan to get off the phone– Have a “buddy” to help get out of high-pressure situation

3. Cool off– Take your time/wait before buying – Don’t trust testimonials & beware of investment “hot tips”

4. Check it out– Do your homework before signing any contract– Get it in writing & read the fine print– Check out the source & check references– Provide accurate information– Know your right to cancel

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Why YOU Should Help• Often in cases of elder abuse, the seniors are unable to

protect themselves• Caregivers and family members are often the

perpetrators• YOU – as a service provider – may be the only person

who will speak up

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How to Report• Report investing or lending fraud to DFI

– Securities Division (investing)– Nondepository Division (lending)– http://kfi.ky.gov – 800-223-2579– 502-573-3390

• Report other elder abuse/financial exploitation to Adult Protective Services and/or local authorities

• Elder Abuse Hotline: – 800-752-6200

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Consumer Resources• Other investing contacts:

– FINRA BrokerCheck www.finra.org/brokercheck – SEC Investment Adviser www.adviserinfo.sec.gov – KY Dept. of Insurance http://insurance.ky.gov – SEC’s EDGAR Database www.sec.gov/edgar.shtml

• Other lending contacts:– Consumer Financial Protection Bureau 855-411-2372

www.consumerfinance.gov/contact-us/ – Protect My Kentucky Home 866-830-7868

www.ProtectMyKYHome.org – Neighborworks/Homeownership Preservation Foundation

888-995-HOPE www.foreclosurehelpandhope.org/ – HUD 800-569-4287 http://portal.hud.gov/hudportal/HUD?

src=/ homeownerhelp

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Questions?

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