'Trusted contacts' provide banks new fraud bulwark

• Key Insight: Alerting an elderly client's "trusted contacts" can be a fast way to short-circuit a scam, but experts say it must be done carefully.
• Supporting Data: In 2024, American seniors lost $4.9 billion to scams.
• Expert Quote: "A lot of times these situations are very time sensitive," said Ashley Sharp, a vice president at the Illinois Credit Union League. "So by notifying somebody right away … the thought is that they might be able to get to that member sooner."

A growing number of state laws have given lenders a new weapon against elder fraud: the "trusted contact" list. But for banks, experts say this tool can be a double-edged sword.

The latest example is in Illinois. A new amendment to the Illinois Credit Union Act, passed on Aug. 19, allows credit unions to contact a client's "trusted advisor" — often an adult child or other family member — when fraud is suspected.

Illinois' amendment only applies to credit unions, but some say the measure could work just as easily for banks.

"We do like the credit unions' approach on this, and certainly it's something we should consider going forward," said Ben Jackson, an executive vice president at the Illinois Banking Association, a bank trade group in the state.

In fact, some states already allow banks to use this tactic. In 2024, Virginia passed a law permitting all financial institutions to alert an elderly customer's "trusted contact" about a potential scam. That same year, Wisconsin enacted a law authorizing both banks and credit unions to reach out to the "authorized contacts" of a vulnerable client.

The advantage of this approach, proponents say, is that contacting a friend or relative can often stop a scam more quickly than navigating the proper legal channels. Before Illinois' new law was passed, for example, the only option available to credit unions suspecting a scam was to alert law enforcement or other state agencies.

"Unfortunately, it does take time to work through those channels," said Ashley Sharp, a vice president at the Illinois Credit Union League, which proposed the amendment. "And a lot of times these situations are very time sensitive. So by notifying somebody right away … the thought is that they might be able to get to that member sooner."

Elder fraud is a rapidly growing problem in the U.S. In 2024, Americans aged 60 and older lost $4.9 billion to scams — more than any other age group, and a 43% increase from 2023, according to the FBI. The average loss was $83,000.

So the incentive for banks to take action is strong, on multiple levels. Rolland Johannsen, a senior associate at the bank consulting firm Capital Performance Group, said effective anti-fraud measures are not only good for clients, but also helpful for the banks themselves.

Banks "could and should use this as part of their way to attract and retain this very important market segment," Johannsen said. "To me, it's a competitive differentiation to be able to create very robust, effective and proactive ways to deal with scams directed at seniors."

A list of trusted contacts, Johannsen said, can be a powerful addition to that toolbox. The challenge is finding a way to ask for it without causing offense.

"Sometimes it's a very awkward conversation to have with a senior customer," he said. "The last thing you want to do is violate somebody's privacy or question their competency."

Read more on elder fraud:
https://www.americanbanker.com/tag/elder-fraud

To minimize that awkwardness, Johannsen's advice is to focus not on the vulnerability of the client, but on the skill of today's scammers. And most importantly, the talk should take place long before the issue ever comes up.

"This is a conversation that one should have with the customer, saying, 'Listen, this is a big problem,'" Johannsen said. "'We're really watching for it, but we think it would be helpful if you could designate somebody who we could notify as well, because so often these scams are so good, it's very hard for the customer to identify it.'" 

Then there's a darker scenario: In some cases, the trusted contact turns out to be the scammer.

"There are situations where family members are perpetrating exploitation," Jackson said. "And for the financial institution … they're often the ones having to make a judgement call on whether or not they should release funds from an account, close an account, open an account. It's very delicate."

There is a silver lining to this situation, however: The perpetrator can be identified. Instead of a stranger working from an unknown location, a trusted-contact criminal is a person well known to the victim. And with the right training, a bank employee can recognize the signs that something is wrong and help bring the scammer to justice.

"The problem with most of these … scams and frauds is you can't find the people who did it," Johannsen said. "When it's a relative, that's elder abuse. … Those types of things can be prosecuted, and they're much more likely to have repercussions."

In any case, the trusted contact list is only one of many tools at banks' disposal, and more could be on the way. The Illinois Banking Association is mulling over a number of anti-fraud measures to recommend to state legislators, including new rules for mandatory reporting and the ability to freeze accounts without a court order.

"They're looking for solutions to protect those vulnerable individuals that they work with every day," Jackson said. "So any tool that we can implement that would help them with that mission, I think is positive."