Did you know that your credit union could be sued for elder abuse? It is a scary notion, but a true one.
Elder abuse, and specifically financial elder abuse, is a topic that has received much attention of late, and the reality is that the California statutes that govern elder abuse are increasingly being used by trustees, estates and family members of the elderly to sue financial institutions in an effort to recoup money that has been pilfered by others.
Now this is not to say that your credit union will ultimately be found liable under these statutes, but it does mean that if your institution in brought into such a suit, you can look forward to spending a lot of money defending punitive damage and attorney fees claims both of which are allowed under these statutes. These types of remedies can make a lucrative practice for the plaintiff's attorney. How can you avoid putting yourself at greater risk than need be for such claims? Read on.
At the outset we should note that we live in a litigious society and thus, unfortunately, there is no guarantee that you can stop being brought into such a lawsuit. But there are situations that are more likely to put you at risk. This article is designed to not only make you aware of the potential for being involved in such a lawsuit, but to help you identify situations that can make it more likely that you will be dragged into such a scenario.
Just What is Abusive?
What is financial elder abuse and how can a credit union fall into the trap? The term "financial elder abuse" as defined in the current elder abuse laws is vague at best, which does not help the plight of financial institutions and other business entities. Further, all 50 states and the District of Columbia have their own variation of elder abuse statutes wherein each define abuse differently. Let us take an example specifically focusing on the California version of the law.
* A rogue employee counsels an elderly member that it would be in the member's best interest to have the employee added as a joint member to the member's account so that the employee can properly advise the member in the manner in which she is spending her money and to ensure that the member's assets are protected. The trusting elderly member agrees and the employee thereafter begins to pilfer the funds from the members account and then flees to the Cayman Islands. The elderly member then sues your credit union for the stolen funds. Under this scenario, given the fact that the thief was an employee, it is likely that you can expect a claim of elder abuse from the member as elder abuse in California is defined as one who takes or who assists in taking, secreting, appropriating, or retaining property of an elder or dependent adult to a wrongful use or with intent to defraud, or both.
Not so clear would be a scenario where a caregiver convinces a bedridden elderly person to add the caregiver to the member's account, the elder member thereafter "voluntarily" executes a joint membership account card that the financial institution accepts, and the caregiver thereafter withdraws the member's life savings for his own use. The reason this one is not so clear is that the elderly person did in fact sign the joint account agreement and, therefore, the caregiver had the right to write checks against the account.
At first glance you may think that under these facts it is common sense that the financial institution should not be responsible. However, these are the basic facts of a case recently brought by the estate of an elderly member of a credit union in Southern California. The case was hotly litigated, and the credit union, while ultimately victorious, nevertheless was forced to spend considerable time and resources defending the action.
Why did the estate choose to sue the credit union under these facts? Well, the first logical answer is the deep pocket. But also because the elder abuse statutes allow an elderly person to sue another person or entity for "assisting" another in the wrongful taking of their property, and while the wording of this statute reflects that the courts would likely require that there be at least some bad faith on the part of the "assistor," the wording of the statute is ambiguous enough so as to encourage litigation against those who "unknowingly assisted" another in the taking of the property (i.e., in this example, accepting the joint member card from the caregiver without question, arguably not following proper procedures regarding the verification of signatures and by cashing checks written by the caregiver without question.)
How could this have been avoided? Well, possibly by making one simple telephone call to the elderly member to verify that he had voluntarily executed the joint signature card, and by strictly following its own internal policies and procedures for signature and identity verification.
Now you might be thinking that a financial institution does not have a duty to call each of its members to verify that he or she really meant to sign certain documents, so why should we undertake to do something we do not have to? The answer is that this one call could help your institution potentially avoid having to defend a very costly lawsuit.
What other steps can you take to help avoid being brought into this type of litigation? A good start would be to make sure your internal policies and practices regarding signature and member verifications are being strictly followed by both supervisors and lower level staff, to make sure each is fully aware of the policies and practices, and to encourage each to bring any concerns they have about a member's account up the chain of command, even to the executive level. That way any such concerns can properly be brought to the attention of the institution's attorney for advice.
Does No Good Deed Go Unpunished?
You may ask why do that? What can a financial institution do about it anyway? This is clearly another area of concern. Do you, or even can you report it? If so, to whom? And what about privacy concerns, or concerns about potential defamation lawsuits if you do? You know the old saying that "No good deed goes unpunished."
Fortunately within the statutes designed to protect the elderly, there are also statutes that protect a financial institution should it decide to report such circumstances either to law enforcement or another governmental entity such as Adult Protective Services.
These statutes are contained in both the California Welfare and Institutions Code and the Government Code. These statutes basically state that if a financial institution has a good faith belief that a violation of law is being committed, that it can report such circumstances with impunity to either the police or another related governmental agency. This includes civil actions brought by the member, the member's relatives and/or estate, and the alleged offender.
While this may not stop the lawsuit from being filed anyway, you stand a better chance of getting out of the lawsuit quicker than you would otherwise.
Other practical steps that a financial institution can take in an effort to stave off costly lawsuits of elder abuse include educating its elderly members in statement stuffers of the value in looking carefully at documents that are placed before them that involve their bank accounts, and that if they have any questions or concerns to bring them in to their financial institution, or get the advice of an attorney.
Also inform them of the value of asking questions about why they are being asked to sign certain documents and what the consequences are of signing them.
Ultimately, these laws are designed to protect the elderly, which is a societal good because the elderly need protection. However, the way the laws are currently worded, and given the lack of guidance from the courts, financial institutions can really stand to lose a lot of money if they are not aware and are not proactive about protecting themselves.
Eric A. Schneider and Colleen A. Deziel are attorneys with Anderson, McPharlin & Conners LLP. They can be contacted at 444 So. Flower Street, 31st Floor, Los Angeles, CA 90071-2901 or at (213) 236-1643.
