State Roundup

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As the front end of the Baby Boom generation transitions into senior citizen status, greater attention is being paid – at both the federal and state level – to the ways in which older Americans may be financially exploited and about the best ways to promote sound elder financial management. By way of example, in June 2012, the Consumer Financial Protection Bureau (CFPB), a new agency created under the Dodd-Frank Act, initiated a wide-reaching inquiry into the issue of financial abuse and exploitation of older Americans – or Senior Consumers. NAFA submitted a comment in response to the CFPB’s request for information; the CFPB received an estimated 1,000 comments. NAFA commented that the Association supports all efforts to protect seniors from unscrupulous sales activities, including the consumer-focused NAIC Suitability in Annuity Transactions Model Regulation and hosts a website called fixedannuityfacts.org to help consumers understand fixed annuities and provides tips on how to protect themselves from fraud.

According to Consumer Reports, the financial exploitation of senior consumers is broadly defined as “the illegal or improper use of the funds, property, or assets of people age 60 or older.” A seminal nationwide study conducted by MetLife in 2011 discovered that older Americans lose nearly $3 billion annually to financial abuse or exploitation – and most analysts agree that the actual number is much higher.

Financial exploitation can and does take many forms: stolen credit cards and account identities, forged checks, fraudulent telephone scams, and pilfered bank accounts are some of the more direct ways that individuals can prey on older adults. Exploitation can also occur in the investment realm: a 2012 survey of 2,600 financial planners, conducted by the Certified Financial Planner Board of Standards, found that 56% of the planners knew older clients who had been the victim of unfair, deceptive, or abusive practices. While the majority of elderly financial abuse is perpetrated by acquaintances, friends, or families, it’s estimated that the business sector accounts for approximately 16% of such exploitation.

Of course, laws against fraud, embezzlement, and theft exist on the statute books of every state and are applied to financial transactions involving senior consumers; however, we’re seeing increased legislative and regulatory activity addressed more specifically to the financial protection of older Americans. In the financial services industry, and the fixed annuity industry in particular, such legislative and/or regulatory activities include the adoption of the new Suitability in Annuity Transactions Model Regulation, more aggressive disclosure and “free-look” rules, greater restrictions on the use of senior-specific certifications and professional designations, the adoption of the “70-10 Rule” by an increasing number of states, a greater scrutiny of stranger-originated annuity transactions (STOAs), and increased funds dedicated to the investigation of consumer fraud by state insurance and security departments.

Added to this list, is the phenomenon of a number of states that have already made the financial exploitation of senior consumers a criminal act – and the predictable expansion of this number. Currently, there are seven states that make the financial exploitation of senior consumers a criminal offense: California, Georgia and South Dakota impose criminal sanctions against individuals who are found guilty of financial abuse or exploitation against a person age 65 or older; in Connecticut, Louisiana, Nevada, and Tennessee, the threshold age is 60 or older. (There are a number of other states who make the financial exploitation of a “vulnerable,” “protected,” or “mentally impaired” adult a crime, including Alabama, Delaware, Idaho, Kentucky, Mississippi, and South Carolina, but such vulnerability is not defined by or limited by age; nevertheless, an annuity transaction and the producer who engaged in the sale could be subject to prosecution, if it were determined that the consumer met one of these definitions, even if no fraud had occurred. It’s noteworthy that “senility” is included in the definition of mentally impaired.)

In addition, several states require individuals employed by a financial institution to report suspicions of financial abuse or exploitation of a protected individual, and fifteen states legally require any person—which would include insurance agents and financial advisors–—to report suspected abuse. These states include Arizona, Delaware, Indiana, Kentucky, Mississippi, New Hampshire, New Mexico, North Carolina, Oklahoma, Rhode Island, Tennessee, Texas, Utah, and Wyoming. In some of these states, a “required reporter” who fails to report his or her suspicions of elder financial abuse may be subject to administrative or civil action and, in some instances, criminal penalties.

Since the beginning of January, three additional states have proposed bills to criminalize the financial abuse or financial exploitation of senior consumers, as shown in the table below.

As the population ages, as the CFPB gets up to full speed (along with its Internal Office of Older Americans), as consumer groups and industry experts and organizations increase their collaboration with elected officials, and as the media continues to focus attention on the issue, more and more states will adopt laws that broaden the scope and enhance the penalties for activities deemed elder financial abuse or exploitation. NAFA believes that the Suitability Standards in place today protect consumers from fraud involving fixed annuities. The consumer protections in place for seniors, as well as all fixed annuity purchasers are:

  1. An insurance company review of suitability on each and every sale prior to issuing a policy;
  2. The information reviewed includes the consumer’s overall financial situation and immediate availability of emergency funds;
  3. The purchaser is given a right to return the policy for full refund (free look) after purchase; and
  4. If there’s any determination of fraud or abuse, the funds are secure and protected with the insurance company and available to be returned to the consumer.

NAFA has produced a guide for consumers to help identify and protect themselves from fraudulent or abusive sales practices, as well as detailed information on where and how to report suspected activities. Please visit our website dedicated to consumer information at fixedannuityfacts.org. Meanwhile, NAFA intends to closely monitor these developments and will continue to provide representation for the vast majority of the fixed annuity industry who represent the highest standards of ethical sales practices.

By Pam Heinrich, NAFA Council


NAFA, the National Association for Fixed Annuities, is a national trade association exclusively dedicated to promoting the awareness and understanding of fixed annuities. NAFA is the only association whose sole purpose is advocating for the fixed annuity product.

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