In the wake of the recent economic crisis, many of us have witnessed or experienced financial hardships. Some have seen significant declines in the value of what were presumed to be adequate retirement savings—a harsh but survivable impact of a poorly performing economy. Others have lost most, if not all, of what they worked and saved for over a lifetime. The values of many homes, pensions, 401(k)s, and other assets are now fractions of what they used to be. And some assets, like homes and pension plans, are gone forever, vanished because of foreclosure and lack of funding.
The past few years have been difficult for many. In numerous cases, the dream of a well-planned retirement is either on the back burner or has disappeared.
A Time for Redress
This crisis, and the market abuses that contributed to it, demanded redress by our federal government. Washington responded by adopting significant changes in how it regulates the national economy’s financial sector. Much of this change is embodied in 2010 legislation known as the Dodd−Frank Wall Street Reform and Consumer Protection Act (Dodd−Frank).
The Consumer Financial Protection Bureau (CFPB) was created by the Dodd–Frank legislation, which consolidated into a single agency the responsibility for administering federal consumer financial laws. In doing so, Congress replaced a system in which accountability was divided and no single entity could protect Americans in the consumer financial marketplace. At the same time, Congress took important steps in the Dodd−Frank Act to ensure that the CFPB would not overstep its authority, including placing a number of constraints on powers that do not apply to any other federal banking regulator.
Congress also understood that there are specific consumer populations that deserve particular attention, including students, service members, traditionally underserved consumers, and older Americans. Thus, the Office of Financial Protection for Older Americans was established—the first and only office at the federal level specifically dedicated to the financial health of seniors (defined in the Dodd−Frank Act as those age 62 and older).
The Work and Goals of the CFPB
We know from recent studies that the impact of financial abuse and exploitation of older people is huge. One recent study indicates that Americans older than age 65 lost more than $2.9 billion to this kind of crime in 2010—a 12 percent increase from the amount lost in 2008 (MetLife Mature Market Institute et al., 2011). Women fall victim to this type of crime at nearly two times the rate of men. The plight of older women, especially those ages 85 and older, is of particular concern to our office. The most up-to-date national prevalence study on elder abuse, neglect, and exploitation found that financial mistreatment by family members is the most frequent form of elder mistreatment (Acierno et al., 2010). It is those with whom elders feel most comfortable who too often perpetrate financial abuse.
Thus, Congress gave the Office of Financial Protection for Older Americans a broad range of authorities and responsibilities that include the following: developing goals for programs that would provide financial literacy for older adults; monitoring the certifications and designations of financial advisors who counsel older adults; conducting research to identify best practices and effective tools about personal financial management so elders can better protect themselves from unfair, deceptive, and abusive practices; and coordinating consumer protection efforts with other federal and state regulators on behalf of community organizations that serve older Americans.
The goal of our office is to help educate elders and give them access to the tools they need to navigate safely through the financial marketplace. The breadth of what Congress has asked us to do would be daunting, but for the strong working relationships we are committed to building with partners nationwide. In collaboration with those already passionately engaged in this effort, our mission can and will be accomplished. We have already made a good start by engaging with key government and nonprofit leaders.
I have spent my first few months with the Bureau listening to and learning from older Americans. In my travels throughout the country, I have met with elders, adult protective services administrators, law enforcement officials, prosecutors, and other concerned groups. Through this effort, we are building awareness about financial abuse of older Americans. We recognize and are spreading the word about the tremendous impact diminished capacity has on being able to make fully informed financial decisions. Older persons with diminished decision-making capacity are at risk of losing their independence and a decent quality of life. They also are at greater risk of financial mistreatment by predators ranging from strangers to the most trusted family members.
As we continue with our outreach to increase financial literacy among older Americans and those who serve them, we will focus education efforts on preventing, detecting, and redressing financial exploitation of the aging American population. In order to accomplish this, we recognize that older adults need the tools and training to protect themselves from those who would take advantage of them. We also recognize that caregivers—those who advise and help elders in their financial decision-making—also need help understanding the responsibilities and duties of the caregiving role they are undertaking, whether it is professional, legally authorized, or informal. We will provide guidance to these people, often members of the younger generation, who are in positions of trust.
Thus, our challenge is not confined to those who are ages 62 and older. In order to provide good advice and, in some cases, to act as a surrogate decision-maker for finances, this next generation must be sensitive to the needs of elders. Providing guidance to older persons, their caregivers, and others in positions of trust is one way in which we can begin to enhance protection against financial abuse.
Further Protections and Steps
Another arena where protection can be enhanced is by seeking participation from financial institutions, such as banks and credit unions, which have regular contact with their older customers. It is the bank teller who has known “José” and “Mary” all those years, who has become familiar with the ordinary, regular pattern of financial transactions these good customers make. That bank teller may have an early opportunity to raise a “red flag” if unusual transactions occur. Training financial institution employees to recognize and report what appear to be signs of an older individual’s diminished capacity or suspicious activity in an elderly customer’s account can be a powerful tool in the prevention of elder financial abuse
Beyond our financial literacy efforts, our office will also be taking a close look at the potential misuse of certifications and designations by financial advisors who counsel elders. When older consumers seek professional financial advice, they should be assured that those who hold themselves out as having special expertise actually do have it. In order to make sure that an advisor who has received a diploma, certification, or designation distinguishing them as having special understanding and training to advise elders actually has that expertise, our office is monitoring and developing recommendations for evaluating who truly is a certified expert in the financial field.
One other area of focus is reverse mortgages. This financial product is specially designed for older Americans who own their home, who have paid down or paid off their first mortgage, and now want to tap into the value of that home by converting the equity to cash. For some elders, this may be a useful tool. However, reverse mortgages are expensive loans that may not fit the needs of many older people—and many elders may not be given sufficient information to make the choice. We are looking into the consumer protection and fair lending concerns of these products, which may become more prevalent with the aging of the population.
Collaboration, Partnerships Are Key
The Office of Financial Protection for Older Americans is collaborating with the enforcement and fair lending teams at the CFPB on all the efforts described above, and these partnerships are crucial. In going after the bad actors in the financial marketplace, consumer education and engagement are key, and can only be effective when paired with a strong enforcement effort—a lesson I learned well as a state attorney general.
Finally, we know we’re joining many others on the front lines in working on behalf of older Americans. Our office’s initiatives are just the start of efforts to complement the good work being done by state and local governments, nonprofit organizations, and service providers on behalf of America’s elderly population. I believe a federal presence that aims to educate and engage older people will support an enhanced and more independent life for America’s elders.
Hubert H. Humphrey III is the assistant director, Office of Financial Protection for Older Americans, Consumer Financial Protection Bureau, in Washington, D.C.
Acierno, R., et al. 2010. Prevalence and Correlates of Emotional, Physical, Sexual, and Financial Abuse and Potential Neglect in the United States: The National Elder Mistreatment Study. American Journal of Public Health 100(2): 292−7.
MetLife Mature Market Institute et al. 2011. The MetLife Study of Elder Financial Abuse: Crimes of Occasion, Desperation, and Predation Against America’s Elders. New York, NY: MetLife.
Editor’s Note: This article is taken from the Summer 2012 issue of ASA’s quarterly journal, Generations, an issue devoted to the topic “Financial Capacity and Competency in an Aging America.” ASA members receive Generations as a membership benefit; non-members may purchase subscriptions or single copies of issues at our online store. Full digital access to current and back issues of Generations is also available to ASA members and Generations subscribers at MetaPress.
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