Existing law, the Elder Abuse and Dependent Adult Civil Protection Act, establishes procedures and requirements for the reporting, investigation, and prosecution of elder and dependent adult abuse. Existing law imposes various reporting requirements on mandated reporters of suspected financial abuse, as defined, and imposes a civil penalty for a violation of these provisions. Under existing law, all officers and employees of financial institutions, as defined, are mandated reporters of suspected financial abuse.

This bill would expand the category of mandated reporters of suspected financial abuse to include a broker-dealer and an investment adviser, as defined. The bill would authorize a broker-dealer or investment adviser who makes a report to notify any trusted contact person who had previously been designated by the elder or dependent adult of any known or suspected financial abuse, and to temporarily delay a requested disbursement or transaction from an account of an elder or dependent adult or an account to which an elder or dependent adult is a beneficiary if specified conditions are met. The bill would provide a mandated reporter with civil immunity for any notification or temporary disbursement or transaction delay made in good faith and with reasonable care pursuant to these provisions.

Existing law makes specified reports, including reports of known or suspected financial abuse of an elder or dependent adult, confidential. Any violation of the confidentiality of these reports is a misdemeanor.

This bill would extend that confidentiality to a report of known or suspected financial abuse of an elder or dependent adult by a broker-dealer or investment adviser. By increasing the scope of a crime, the bill would impose a state-mandated local program.

Existing law authorizes information relevant to the incident of elder or dependent adult abuse to be given to specified investigators, including, among others, investigators from an adult protective services agency, a local law enforcement agency, and the probate court.

This bill would instead require information relevant to the incident of elder or dependent adult abuse to be given to those investigators, and would include an investigator from the Department of Business Oversight among those investigators to whom the information is to be given.

Existing law requires a county adult protective services agency to report every known or suspected instance of abuse of an elder or dependent adult, as specified, to law enforcement with jurisdiction over the case and to any public agency given responsibility for investigation in that jurisdiction of cases of elder and dependent adult abuse. Existing law also requires a county adult protective services agency to provide mandated reporters of suspected financial abuse of an elder or dependent adult with instructional materials regarding abuse and neglect of an elder or dependent adult and their obligation to report under these provisions.

The bill would require a county adult protective services agency to additionally report a known or suspected instance of abuse reported by a broker-dealer or investment adviser and to additionally provide instructional materials to broker-dealers or investment advisers. By increasing the duties of local agencies, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that with regard to certain mandates no reimbursement is required by this act for a specified reason.

With regard to any other mandates, this bill would provide that, if the Commission on State Mandates determines that the bill contains costs so mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.

 UNFINISHED BUSINESS  

Bill No: SB 496

Author: Moorlach (R), et al.

Amended: 6/19/19

Vote: 21

SENATE BANKING & F.I. COMMITTEE: 7-0, 4/10/19

AYES: Bradford, Chang, Caballero, Durazo, Hueso, Morrell, Portantino

SENATE JUDICIARY COMMITTEE: 9-0, 4/23/19

AYES: Jackson, Borgeas, Allen, Caballero, Jones, Monning, Stern, Umberg, Wieckowski

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

SENATE FLOOR: 38-0, 5/21/19

AYES: Allen, Archuleta, Atkins, Bates, Beall, Borgeas, Bradford, Caballero, Chang, Dodd, Durazo, Galgiani, Glazer, Grove, Hertzberg, Hill, Hueso, Hurtado, Jackson, Jones, Leyva, McGuire, Mitchell, Monning, Moorlach, Morrell, Nielsen, Pan, Portantino, Roth, Rubio, Skinner, Stern, Stone, Umberg, Wieckowski, Wiener, Wilk

ASSEMBLY FLOOR: 76-0, 8/15/19 (Consent) - See last page for vote

SUBJECT: Financial abuse of elder or dependent adults

SOURCE: Author

DIGEST:

This bill adds broker-dealers and investment advisors to the categories of persons who are mandated reporters of suspected abuse of an elder or dependent adult; allows mandated reporters who report suspected abuse to notify a trusted contact person previously designated by the elder or dependent adult for that purpose, as specified; and allows mandated reporters to temporarily delay requested account transactions and disbursements of elder or dependent adults, as specified.

Assembly Amendments

are technical and corrective.

ANALYSIS:

Existing law:

1. Makes all officers and employees of financial institutions, as defined, mandated reporters of suspected financial abuse of an elder or dependent adult (Welfare and Institutions Code Section 15630.1).
2. Requires a mandated reporter of suspected elder or dependent adult financial abuse, who has direct contact with the elder or dependent adult, or who reviews or approves the elder or dependent adult’s financial documents, records, or transactions in his or her role as a financial services provider, and who has observed or has knowledge of an incident that reasonably appears to be financial abuse, or who reasonably suspects such abuse, to report the known or suspected abuse as soon as practicably possible to the local adult protective services agency or the local law enforcement agency (Welfare and Institutions Code Section 15630.1).
3. Provides that “suspected financial abuse of an elder or dependent adult” occurs when a mandated reporter observes or has knowledge of behavior or unusual circumstances or transactions, or a pattern of behavior or unusual circumstances or transactions, that would lead an individual with like training or experience, based on the same facts, to form a reasonable belief that an elder or dependent adult is the victim of financial abuse, as defined (Welfare and Institutions Code Section 15630.1).
4. Clarifies that an allegation by an elder or dependent adult or by any other person that financial abuse has occurred is not sufficient to trigger the requirement that a mandated reporter report such abuse, if both of the following conditions are met (Welfare and Institutions Code Section 15630.1):
   1. The mandated reporter is aware of no other corroborating or independent evidence of the alleged financial abuse.
   2. In the exercise of his or her professional judgment, the mandated reporter reasonably believes that financial abuse of the elder or dependent adult did not occur.
5. Authorizes a mandated reporter of suspected elder or dependent adult financial abuse to refuse to honor a power of attorney, as defined, if that mandated reporter makes a report that the elder or dependent adult may be subject to financial abuse, as defined under California law or in similar laws of another state, by the person seeking to act under the authority of the power of attorney (Welfare and Institutions Code Section 15630.1).
6. Provides that failure of a mandated reporter to report financial abuse is subject to a civil penalty not exceeding $1,000 ($5,000 if the failure to report is willful), which must be paid by the financial institution that employs the mandated reporter (Welfare and Institutions Code Section 15630.1).
7. Authorizes the provision of information relevant to an incident of elder or dependent adult abuse to specified persons who are investigating a known or suspected case of elder or dependent adult abuse (Welfare and Institutions Code Section 15633.5).

This bill:

1. Creates a new section of law, separate from but based on the section currently applicable to banks and credit unions, which makes broker-dealers, as defined in Section 25004 of the Corporations Code, and investment advisors, as defined in Section 25009 of the Corporations Code mandated reporters of suspected financial abuse of an elder or dependent adult. Requires reporting when a broker-dealer or investment advisor observes or has knowledge of an incident that reasonably appears to be financial abuse or when the person reasonably believes the existence of that abuse. Except as provided below, the requirements that this bill imposes on broker-dealers and investment advisors are identical to those currently imposed on banks and credit unions.
2. Requires broker-dealers and investment advisors to report suspected financial abuse to the local adult protective services agency (or the local ombudsperson, if the elder or dependent adult resides in a long-term care facility), the local law enforcement agency, and the Department of Business Oversight (DBO). Mandated reporters at banks and credit unions have a choice of reporting either to a local adult protective services agency (or ombudsperson, if the elder or dependent adult resides in a long-term care facility) or a local law enforcement agency.
3. Authorizes a broker-dealer or investment advisor who reports suspected financial abuse to additionally notify any trusted contact person who had had previously been identified by the elder or dependent adult for that purpose, unless that third party is suspected of the abuse. Existing law contains no similar provision applicable to banks and credit unions.
4. Authorizes a broker-dealer or investment advisor to temporarily delay a requested disbursement from, or requested transaction involving, an account of an elder or dependent adult or an account to which an elder or dependent adult is a beneficiary, if the mandated reporter meets all of the following conditions:
   1. Has a reasonable belief, after initiating an internal review of the requested disbursement or transaction and the suspected financial abuse, that the requested disbursement or transaction may result in the financial abuse of an elder or dependent adult.
   2. Immediately, but no later than two business days after the disbursement or transaction is delayed, provides written notification of the delay and the reason for the delay to all parties authorized to transact business on the account, unless a party is reasonably believed to have engaged in suspected financial abuse of the elder or dependent adult.
   3. Immediately, but no later than two business days after the requested disbursement or transaction is delayed, notifies the local adult protective services agency, local law enforcement agency, and DBO about the delay, and subsequently provides these agencies with any updates relevant to the initial report.
   4. Existing law contains no similar provision allowing banks and credit unions to delay disbursements or transactions if financial abuse is suspected.
5. Provides that any delay of a disbursement or a transaction expires the earlier of either of the following:
   1. A determination by the mandated reporter that the disbursement or transaction will not result in financial abuse of the elder or dependent adult, provided that the mandated reporter first consults with the local county adult protective services agency, local law enforcement agency, and DBO and receives no objection from those entities.
   2. Fifteen business days after the date on which the mandated reporter first delayed the disbursement or transaction, unless the local adult protective services agency, local law enforcement agency, or DBO requests that the mandated reporter extend the delay. An extended delay expires no more than 25 business days after the date of the original delay, unless terminated earlier by the entity requesting the extended delay or by a court of competent jurisdiction.
6. Authorizes a court of competent jurisdiction to enter an order extending any delay or to order other protective relief based on the petition of an adult protective services agency, the mandated reporter, or other interested party.
7. Provides broker-dealers and investment advisors with immunity from civil liability if they delay a disbursement or transaction in good faith and with reasonable care and in accordance with the aforementioned rules.
8. Authorizes a local adult protective services agency, local law enforcement agency, or DBO to disclose the general status or final disposition of any investigation arising from a report made by a mandated reporter, upon request from that mandated reporter. This authority is unique to broker-dealers and investment advisors; no similar authority allows banks and credit unions to request information regarding the general status or final disposition of reports they make.
9. Requires the provision of information relevant to an incident of elder or dependent adult abuse to specified persons who are investigating a known or suspected case of elder or dependent adult abuse and adds DBO to the list of organizations whose investigators may receive such information. Existing law authorizes, rather than requires, the provision of this information.
10. Makes related, conforming changes.

Background

This bill is intended to help bolster California’s laws protecting elder and dependent adults against financial abuse by expanding the mandated reporter law to broker-dealers and investment advisors. According to the author’s office, financial exploitation is one of the fastest growing categories of elder abuse in the United States. As the baby boom generation ages, California’s senior population is predicted to nearly double over the next two decades – an increase of over four million seniors. The National Adult Protective Services Association notes that one in nine seniors reports being abused, neglected, or exploited in the past twelve months, with one in twenty reporting some form of financial mistreatment. Yet, available evidence suggests that only one in 44 cases of financial abuse is ever reported.

This bill attempts to address the problem by proposing to codify a modified version of a Model Act developed by the North American Securities Administrators Association (NASAA). According to NASAA, 19 states had enacted Model Act legislation through January 30 of this year, and similar legislation was pending in five states, including California.

Comments

Requiring broker-dealers and investment advisors to become mandated reporters is consistent with the duties these securities professionals already have to their clients. The federal Investment Advisers Act of 1940 already imposes a fiduciary duty on investment advisors in their dealings with their clients. Case law and DBO regulations already impose a suitability standard on broker-dealers. For these reasons, this bill can be viewed as a reasonable next step, which builds on the responsibilities broker-dealers and investment advisors already have to their clients.

However, like other elder and dependent adult financial abuse mandated reporter bills, SB 496 must tread a delicate path. While no one would argue against the importance of protecting elders and dependent adults from financial abuse, protections must be carefully crafted to minimize the possibility that competent individuals will be prevented from transacting their financial affairs due to overzealous do-gooders. Many seniors retain sharp minds well into their 80s, 90s, and beyond, and will fiercely defend their independence and right to make their own financial decisions. Many dependent adults are similarly competent and resistant to interference in their financial decisions. The requirements of this bill attempt to strike a balance between these two competing goals.

This bill has five substantive provisions, two of which are virtually identical to those that currently apply to bank and credit union employees, and three of which are new to California law but have been adopted by several other states.

Making broker-dealers and investment advisors mandated reporters of financial abuse (similar to the rules applicable to banks and credit unions). With one exception, the mandated reporting requirements of this bill are identical to those which have applied to banks and credit union officers and employees since 2007, and which have been credited with identifying and preventing financial fraud that could have been devastating to the intended victims. The unique aspect of this bill is its requirement that broker-dealers and investment advisors make reports to three entities (adult protective services/local ombudsperson, local law enforcement agency, and DBO). Bank and credit union employees may choose to report either to local adult protective services/the local ombudsperson or to the local law enforcement agency.

Allowing broker-dealers and investment advisors to refuse to honor a power of attorney in instances of suspected financial abuse (identical to the rules applicable to banks and credit unions). This provision is identical to authority that was given to bank and credit union officers and employees, effective January 1, 2018. Because of the relatively short period of time this provision has been in effect for banks and credit unions, information is unavailable regarding its impact.

Allowing broker-dealers and investment advisors to notify trusted third parties regarding suspected abuse (not applicable to banks and credit unions). This bill allows broker-dealers and investment advisors who make a report of suspected financial abuse to additionally notify a trusted third party identified by the elder or dependent adult for that purpose. This provision is intended to help ensure that someone known to and trusted by the elder or dependent adult is aware that a report has been made.

Provisions similar to the one in this bill have already been adopted by 19 other states and are based on rules that already apply to securities professionals. Financial Industry Regulatory Authority Rule 4512.06 requires securities professionals to disclose to each customer that the customer may identify a trusted contact person, who can be contacted by the securities professional for a variety of different purposes, including reports of possible financial exploitation. Thus, the concept of a trusted third party is already in use by securities professionals; this bill simply codifies the ability of securities professionals to notify those trusted third parties after they have reported suspected financial abuse.

Allowing broker-dealers and investment advisors to temporarily delay disbursements or transactions (not applicable to banks and credit unions). Provisions of this bill that allow securities professionals to temporarily delay disbursements or other account transactions when they suspect financial abuse likely have the greatest potential to cross the line between abuse prevention and intrusive over-protection. For that reason, this bill imposes a higher standard on securities professionals, before they may delay transactions or disbursements, relative to the standards that apply to the other provisions of this bill. Specifically, before delaying a disbursement or transaction, a mandated reporter must initiate an internal review of the requested disbursement or transaction and the suspected financial abuse and must have a reasonable belief, following that review, that the requested transaction or disbursement may result in financial abuse. The requirement to conduct an internal review goes beyond what is necessary to substantiate an initial report of suspected financial abuse.

Authorizing the disclosure of information to mandated reporters (not applicable to banks and credit unions). Finally, this bill authorizes broker-dealers and investment advisors who have reported suspected financial abuse to check back in with the organizations they notified to check on the general status or final disposition of an investigation that followed the report. Absent this authority, securities professionals will have no way of knowing whether their reports helped identify financial abuse or were false alarms.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes

According to the Assembly Appropriations Committee, this bill will result in potentially reimbursable state mandated costs to counties to report a potentially greater number of known or suspected cases of abuse and to provide instructional materials regarding abuse and neglect of an elder or dependent adult to additional mandated reporters. These costs are likely to be minor and are subject to a determination by the Commission on State Mandates, should a county submit a claim. This bill will also result in minor and absorbable implementation costs to DBO and the California Department of Aging.

SUPPORT: (Verified 8/15/19)

California District Attorneys Association

Financial Services Institute

Securities Industry and Financial Markets Association

OPPOSITION: (Verified 8/15/19)

None received

ARGUMENTS IN SUPPORT: The Securities Industry and Financial Markets Association writes, “U.S. seniors reportedly lose an estimated $2.9 billion every year to financial exploitation. We believe this legislation, once enacted, will help seniors hold on to their hard-earned money.”

ASSEMBLY FLOOR: 76-0, 8/15/19

AYES: Aguiar-Curry, Arambula, Bauer-Kahan, Berman, Bigelow, Bloom, Boerner Horvath, Bonta, Brough, Burke, Calderon, Carrillo, Cervantes, Chau, Chen, Chiu, Choi, Chu, Cooley, Cooper, Cunningham, Daly, Diep, Eggman, Flora, Fong, Friedman, Gabriel, Gallagher, Cristina Garcia, Gipson, Gloria, Gonzalez, Gray, Grayson, Holden, Irwin, Kalra, Kamlager-Dove, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Muratsuchi, Nazarian, Obernolte, O'Donnell, Patterson, Petrie-Norris, Quirk, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Salas, Santiago, Smith, Mark Stone, Ting, Voepel, Waldron, Weber, Wicks, Wood, Rendon

NO VOTE RECORDED: Frazier, Eduardo Garcia, Jones-Sawyer

Prepared by: Eileen Newhall / B. & F.I. /

8/16/19 13:35:44

**** END ****

Date of Hearing: July 10, 2019

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez, Chair

SBPCA Bill Id:SB 496

Author:(Moorlach) – As Amended Ver:June 19, 2019

Urgency: No State Mandated Local Program: Yes Reimbursable: Yes

SUMMARY:

This bill expands the category of mandated reporters of financial abuse of an elder or dependent adult to include broker-dealers and investment advisers. The bill also allows broker-dealers and investment advisors, under specified circumstances, to notify a “trusted contact person” about the suspected abuse and to temporarily delay disbursements if, after an internal review, there is a reasonable belief that disbursements will result in the financial abuse of the elder or dependent adult. The bill provides qualified immunity to reporters of suspected abuse for harms caused by unnecessary notices and delays. Finally, the bill adds the Department of Business Oversight (DBO) to the list of entities authorized to receive reports of suspected financial abuse of an elder or dependent adult.

FISCAL EFFECT:

1. Potentially reimbursable state mandated costs to counties to report a potentially greater number of known or suspected cases of abuse and to provide instructional materials regarding abuse and neglect of an elder or dependent adult to additional mandated reporters. These costs are likely to be minor and are subject to a determination by the Commission on State Mandates, should a county submit a claim.
2. Minor and absorbable implementation costs to DBO and the California Department of Aging.

COMMENTS:

1. Purpose. This bill seeks to further protect elder or dependent adults from financial abuse by extending the list of mandated reporters to include broker-dealers and investment advisors. According to the author:

Financial exploitation is one of the fastest growing categories of elder abuse in the United States. The National Adult Protective Services Association notes that one in nine seniors reports being abused, neglected, or exploited in the past twelve months, with one in twenty reporting some form of financial mistreatment. Yet, available evidence suggests that only one in 44 cases of financial abuse is ever reported. This bill attempts to address the problem by proposing to codify a modified version of a Model Act developed by the North American Securities Administrators Association (NASAA).

1. Background. Existing law, the Financial Elder Abuse Reporting Act, is designed to empower bank and credit union employees to spot and report suspected instances of financial elder or dependent adult abuse. Existing law defines a "mandated reporter of suspected financial abuse of an elder or dependent adult" to include an officer or employee of a bank, credit union or other depository institution. Existing law generally requires mandated reporters to report suspected financial abuse of an elder or dependent adult to an adult protective services agency or a law enforcement agency, and others under certain circumstances. If a mandated reporter fails to report, existing law imposes a civil penalty not exceeding $1,000, or a civil penalty not exceeding $5,000 if the failure is willful.
2. Prior Legislation.

AB 611 (Dababneh), Chapter 408, Statutes of 2017, authorizes a mandated reporter of suspected elder or dependent adult financial abuse to refuse to honor a power of attorney if that mandated reporter makes a report that the elder or dependent adult may be subject to financial abuse.

SB 33 (Simitian), Chapter 372, Statutes of 2011, deleted the sunset date on the Financial Elder Abuse Reporting Act.

SB 1018 (Simitian), Chapter 140, Statutes of 2005, enacted the Financial Elder Abuse Reporting Act of 2005, operative January 1, 2007, and originally scheduled to sunset on January 1, 2013.

Analysis Prepared by: Jennifer Swenson / APPR. / (916) 319-2081

Date of Hearing: June 18, 2019

ASSEMBLY COMMITTEE ON JUDICIARY

Mark Stone, Chair

SBPCA Bill Id:SB 496

Author:(Moorlach) – As Amended Ver:May 15, 2019

PROPOSED CONSENT (As Proposed to be Amended)

SENATE VOTE: 38-0

SUBJECT: Financial abuse of elder or dependent adults

KEY ISSUE: should broker-dealers and investment advisers, as defined, be mandated reporters of suspected financial abuse of elder or dependent adults?

SYNOPSIS

Existing law generally requires certain “mandated reporters” to report suspected financial abuse of an elder or dependent adult to an Adult Protective Services agency or a law enforcement agency. A person who fails to report is subject to a civil penalty not exceeding $1,000, or a civil penalty not exceeding $5,000 if the failure is willful. Existing law defines a "mandated reporter of suspected financial abuse of an elder or dependent adult" to include an officer or employee of a bank, credit union, or other depository institution. This non-controversial bill will extend these reporting requirements to “broker-dealers” and “investment advisors,” as defined, because, like bank employees, they have the opportunity and training to observe and recognize shenanigans that might indicate financial fraud and abuse. In addition to requiring reporting of the suspected abuse to an appropriate agency, the bill also allows broker-dealers and investment advisors, under specified circumstances, to notify a “trusted contact person” about the suspected abuse and to temporarily delay disbursements if, after an internal review, there is a reasonable belief that disbursements will result in the financial abuse of the elder or dependent adult. Finally, the bill adds the Department of Business Oversight to the entities that may receive reports of suspected financial abuse. The bill makes other conforming changes to existing law and provides qualified immunity to reporters of suspected abuse for harms caused by unnecessary notices and delays, as specified. The California District Attorneys Association and representatives of the financial and securities industries support this bill. The bill has no registered opposition. The author will take a technical amendment in Committee.

SUMMARY: Expands the category of mandated reporters of financial abuse of an elder or dependent adult to include broker-dealers and investment advisers. Specifically, this bill:

1. Defines a “mandated reporter of suspected financial abuse of an elder or dependent adult” [hereafter “mandated reporter”] to include broker-dealers and investment advisers. For these purposes the bill uses the following definitions:
   1. A “broker-dealer” means a person engaged in the business of effecting transactions in securities in this state for the account of others or for the person’s own account. A “broker-dealer” also includes a person engaged in the regular business of issuing or guaranteeing options with regard to securities not of the person’s own issue. Specifies that a “broker-dealer” does not include any other issuer, an agent, when an employee of a broker or issuer, a bank or other savings institution, or other persons as specified.
   2. An “investment adviser” means a person who, for compensation, engages in the business of advising others, either directly or through publications or other writings, as to the value of securities or as to the advisability of investing in, purchasing or selling securities, or who, for compensation and as a part of a regular business, publishes analyses or reports concerning securities. Specifies that “investment adviser” does not include a bank or other savings institution, or other professions whose performance of investment advising services are incidental to the practice of the profession, or other persons as specified.
2. Requires broker-dealers and investment advisers, as mandated reporters, to report known or suspected instances of financial abuse, in the manner specified, immediately or as soon as practicably possible, to the local adult protective services agency, the local law enforcement agency, and the Department of Business Oversight. In the case of a long-term care facility, the mandated reporter shall make the report to the local long-term care ombudsman, local law enforcement agency, and the Department of Business Oversight. Specifies the manner of reporting when two or more mandated reporters jointly have knowledge or reasonable suspicion of financial abuse.
3. Specifies that an allegation by the elder or dependent adult that financial abuse has occurred is not sufficient to trigger the reporting requirement under this bill if both of the following conditions are met:
   1. The mandated reporter is aware of no other corroborating or independent evidence of the alleged financial abuse.
   2. In the exercise of their professional judgement, the mandated reporter reasonably believes that financial abuse of an elder or dependent abuse did not occur.
4. Subjects a person who fails to report financial abuse as required to a civil penalty not exceeding $1,000, or if the failure to report is willful, a civil penalty not exceeding $5,000, paid by the employer of the mandated reporter to the party bringing the action. Specifies that no one other than the Attorney General, district attorney, or county counsel may bring an action to recover the civil penalty.
5. Provides that “suspected financial abuse of an elder or dependent adult” occurs when a mandated reporter observes or has knowledge of unusual behavior, circumstances, or transactions (or a pattern of such behavior, circumstances, or transactions) that would lead a person with like experience to form a reasonable belief that an elder or dependent adult is the victim of financial abuse.
6. Specifies that a report made under the provisions of this bill is covered by the litigation privilege in subdivision (b) of Section 47 of the Civil Code.
7. Permits a mandated reporter who makes a report pursuant to this bill to notify any trusted contact person designated by the elder or dependent adult to receive notification of any known or suspected financial abuse, unless the trusted contact person is the suspected perpetrator of the financial abuse. Specifies that a mandated reporter who makes a notification under this provision shall not be civilly liable for any notification made in good faith and with reasonable care.
8. Authorizes a mandated reporter to refuse to honor a power of attorney if the mandated reporter makes a report to an adult protective services agency or a local law enforcement agency, as specified.
9. Permits a mandated reporter to temporarily delay a requested disbursement or transaction involving the account of the elder or dependent adult, or an account to which the elder or dependent adult is a beneficiary, if the mandated reporter, after an internal review, has a reasonable belief that the disbursement or transaction may result in financial abuse. Sets forth procedures for providing notice to specified parties and establishes a timeline for investigating suspected abuse and terminating the temporary delay. Specifies that a mandated reporter shall not be civilly liable for any temporary delay made in good faith and with reasonable care.
10. Adds the Department of Business Oversight to the entities that receive reports and makes conforming changes in existing law.

EXISTING LAW:

1. Requires a mandated reporter of suspected financial abuse of an elder or dependent adult who has directly observed or has knowledge of an incident that reasonably appears to be financial abuse, to report the known or suspected financial abuse to an adult protective services agency or law enforcement agency as soon as practicably possible. Specifies the manner of reporting when two or more mandated reporters jointly have knowledge or reasonable suspicion of financial abuse. (Welfare & Institutions Code Section 15630.1.)
2. Defines "mandated reporter of suspected financial abuse of an elder or dependent adult" to mean all officers and employees of financial institutions, including banks, credit unions, and other depository institutions. (Welfare & Institutions Code Section 15630.1 (a)-(b).)
3. Specifies that an allegation by the elder or dependent adult, or any other person, that financial abuse has occurred is not sufficient to trigger the reporting requirement if the mandated reporter is aware of no other corroborating evidence, or, if in the exercise of professional judgment, financial abuse did not occur. (Welfare & Institutions Code Section 15630.1 (e).)
4. Subjects a mandated reporter of financial abuse who fails to make a report, as required, to a civil penalty not exceeding $1000, or if the failure is willful, a civil penalty not to exceed $5,000, which shall be paid by the financial institution to the Attorney General, district attorney, or county attorney bringing the action. Specifies that only the Attorney General, district attorney, or county counsel may bring an action under this provision. (Welfare & Institutions Code Section 15630.1 (f)-(g).)
5. Authorizes a mandated reporter of suspected financial abuse of an elder or dependent to refuse to honor a power of attorney if the mandated reporter makes a report to an adult protective services agency or a local law enforcement agency, as specified. (Welfare & Institutions Code Section 15630.1 (j).)

FISCAL EFFECT: As currently in print this bill is keyed fiscal.

COMMENTS: The Elder and Dependent Adult Civil Protection Act (EADACPA) was enacted to prevent elder and dependent adult abuse and neglect and to prosecute those who commit abuse or neglect on elders and dependent adults. Mandated reporters are generally those whose occupations place them in a position to observe, or otherwise have knowledge of, elder or dependent adult physical and psychological abuse, including health care providers, clergy, employees of county adult protective services, or members of local law enforcement. However, EADACPA also targets “financial abuse,” which is defined as appropriating the real or personal property of the elder or dependent adult for a wrongful use or with intent to defraud, or both, or assisting another person to do the same. In order to combat this problem, EADACPA designates officers and employees of banks, credit unions, and other depository institutions as "mandated reporters of suspected financial abuse of an elder or dependent adult." Specifically, EADACPA requires reporting by those officers and employees of savings institutions if their work requires them to have direct contact with, and review the financial records and documents of, elders and dependent adults.

Extending EADACPA: For the same reason that existing law makes officers and employees of savings institutions mandated reporters, this bill will require “broker-dealers” and “investment advisers” to be mandated reporters. The bill defines a “broker-dealer” to include any person engaged in the business of effecting transactions in securities in this state. It defines “investment adviser” to mean a person who engages in the business of advising others, either directly or through publications or other writings, as to the value of securities or as to the advisability of investing in, purchasing or selling securities, or who, as a part of a regular business, publishes analyses or reports concerning securities. The bill defines both terms to exclude banks or other savings institutions, since existing law already covers their officers and employees.

Finally, this bill adds the Department of Business Oversight to the list of entities authorized to receive reports of suspected financial abuse of an elder or dependent adult. Entities authorized to receive reports in existing law include local law enforcement, adult protective services, the probate court, and (for persons in long-term care facilities) the long-term care ombudsman program.

Informing “trusted contacts” and delaying disbursements and transactions: In addition to extending the duty to report suspected financial abuse to broker-dealers and investment advisors, the bill has two additional provisions that do not apply to officers and employees of banks and savings institutions. First, this bill will allow broker-dealers and investment advisors to notify a “trusted contact person” who has been designated by the elder or dependent adult for that purpose, unless the “trusted contact person” is the person suspected of perpetrating the abuse. Second, this bill would allow the broker-dealer and investment adviser to delay disbursements or transactions, temporarily, if the broker or advisor reasonably suspects that the disbursement or transaction will result in the financial abuse of the elder or dependent adult. Because delaying disbursements or transactions, even if only temporarily, could have adverse consequences for the elder or dependent adult, this bill would only allow the delay if the mandated reporter has a reasonable belief, based upon an internal review, that the disbursement or transaction will result in financial abuse. In addition, a mandated reporter who delays a reimbursement or transaction must provide timely notification to relevant agencies and parties authorized to transact business on the account, but, of course, not to any party suspected of engaging in the financial abuse. In addition, the bill imposes time limits on any delay.

Limited Immunity for Unnecessary Reports and Delays: In order to encourage persons to report suspected financial abuse of elders and dependents adults, existing law provides that a mandated reporter shall not be criminally or civilly liable for making any report that is required or authorized by existing law. The provision of existing law that provides immunity to mandated reporters of all kinds will also apply to broker-dealers and investment advisers that become mandated reporters by the provisions of this bill. This bill would provide a much more limited immunity (if indeed it is an immunity at all) for the permissive authority to notify trusted contact persons and to delay disbursements and transactions in cases of suspected financial abuse. While the immunity for making reports in existing law is absolute – that is, no liability shall apply – the immunity for notifying trusted contacts and delaying disbursements merely states that the mandated reporter shall not be liable for any notice or delay that is “made in good faith and with reasonable care.” Indeed, one could argue that this language does not provide any immunity, given that under the negligence standard of tort law a person who exercises “reasonable care” is, by definition, not liable.

Ombudsman or Ombudsperson? As noted above, mandated reporters of elder or dependent adult financial abuse make their reports to local law enforcement, adult protective services, and, as added by this bill, the Department of Business Oversight. In the case of elders or dependent adults in long-term care facilities, both under existing law and under this bill, a report may go to the long-term ombudsman program. Authorized by the federal Older Americans Act and its state companion, the Older Californians Act, the California Long-Term Ombudsman Program has authority to investigate, and attempt to resolve, complaints made by, or on behalf of, individual residents in long-term care facilities. Consistent with the state’s efforts to eliminate gendered terminology in the codes, the bill in print admirably uses the term “ombudsperson,” instead of “ombudsman,” throughout. However, the author received a request from the State Long-Term Care Ombudsman (located within the California Department of Aging) that the bill use the term “ombudsman” in order to be consistent with the official name of the state program and terminology used elsewhere in EADACPA. To honor this request, the author will amend the bill in this Committee accordingly. In light of the program’s official name and the use of “ombudsman” elsewhere in the code, this change seems reasonable. At some point, however, the Legislature may wish to update the code, as well as changing the program’s official name: the subject for another bill, perhaps.

Author Amendments: The author will take the following amendments in this Committee:

• Change “ombudsperson” to “ombudsman” throughout.

ARGUMENTS IN SUPPORT: The Securities Industry and Financial Markets Association (SIFMA) supports SB 496 because it will “require brokers to report suspected financial exploitation to specific agencies and allow them to place a temporarily hold on potentially concerning transactions and disbursements while the suspicious activity is being investigated. U.S. seniors reportedly lose an estimated $2.9 billion every year to financial exploitation.” SIFMA believes “this legislation, once enacted, will help seniors hold on to their hard-earned money.”

REGISTERED SUPPORT / OPPOSITION:

Support

California District Attorneys Association

Financial Services Institute

Securities Industry and Financial Markets Association

Opposition

None on file

Analysis Prepared by: Thomas Clark / JUD. / (916) 319-2334

Date of Hearing: June 11, 2019

ASSEMBLY COMMITTEE ON AGING AND LONG-TERM CARE

Adrin Nazarian, Chair

SBPCA Bill Id:SB 496

Author:(Moorlach) – As Amended Ver:May 15, 2019

SENATE VOTE: 38-0

SUBJECT: Financial abuse of elder or dependent adults.

SUMMARY: This bill adds broker-dealers and investment advisors to the categories of persons who are mandated reporters of suspected abuse of an elder or dependent adult; allows mandated reporters who report suspected abuse to notify a trusted contact person previously designated by the elder or dependent adult for that purpose, as specified; and, allows mandated reporters to temporarily delay requested account transactions and disbursements of elder or dependent adults, as specified. Specifically, this bill:

1. Creates a new section of law, separate from but based on the section currently applicable to banks and credit unions, which makes broker-dealers, and investment advisors, mandated reporters of suspected financial abuse of an elder or dependent adult.
2. Requires broker-dealers and investment advisors to report suspected financial abuse to the local adult protective services agency (or the local ombudsperson, if the elder or dependent adult resides in a long-term care facility), the local law enforcement agency, and the Department of Business Oversight (DBO).
3. Authorizes a broker-dealer or investment advisor who reports suspected financial abuse to additionally notify any trusted contact person who had had previously been identified by the elder or dependent adult for that purpose, unless that third party is suspected of the abuse. Existing law contains no similar provision applicable to banks and credit unions.
4. Authorizes a broker-dealer or investment advisor to temporarily delay a requested disbursement from, or requested transaction involving, an account of an elder or dependent adult or an account to which an elder or dependent adult is a beneficiary, if the mandated reporter meets all of the following conditions:
   1. Has a reasonable belief, after initiating an internal review of the requested disbursement or transaction and the suspected financial abuse, that the requested disbursement or transaction may result in the financial abuse of an elder or dependent adult.
   2. Immediately, but no later than two business days after the disbursement or transaction is delayed, provides written notification of the delay and the reason for the delay to all parties authorized to transact business on the account, unless a party is reasonably believed to have engaged in suspected financial abuse of the elder or dependent adult.
   3. Immediately, but no later than two business days after the requested disbursement or transaction is delayed, notifies the local adult protective services agency, local law enforcement agency, and DBO about the delay, and subsequently provides these agencies with any updates relevant to the initial report.
5. Provides that any delay of a disbursement or a transaction expires the earlier of either of the following:
   1. A determination by the mandated reporter that the disbursement or transaction will not result in financial abuse of the elder or dependent adult, provided that the mandated reporter first consults with the local county adult protective services agency, local law enforcement agency, and DBO and receives no objection from those entities.
   2. Fifteen business days after the date on which the mandated reporter first delayed the disbursement or transaction, unless the local adult protective services agency, local law enforcement agency, or DBO requests that the mandated reporter extend the delay. An extended delay expires no more than 25 business days after the date of the original delay, unless terminated earlier by the entity requesting the extended delay or by a court of competent jurisdiction.
6. Authorizes a court of competent jurisdiction to enter an order extending any delay or to order other protective relief based on the petition of an adult protective services agency, the mandated reporter, or other interested party.
7. Provides broker-dealers and investment advisors with immunity from civil liability if they delay a disbursement or transaction in good faith and with reasonable care and in accordance with the aforementioned rules.
8. Authorizes a local adult protective services agency, local law enforcement agency, or DBO to disclose the general status or final disposition of any investigation arising from a report made by a mandated reporter, upon request from that mandated reporter. This authority is unique to broker-dealers and investment advisors; no similar authority allows banks and credit unions to request information regarding the general status or final disposition of reports they make.
9. Requires the provision of information relevant to an incident of elder or dependent adult abuse to specified persons who are investigating a known or suspected case of elder or dependent adult abuse and adds DBO to the list of organizations whose investigators may receive such information.

EXISTING LAW:

1. Makes all officers and employees of financial institutions, as defined, mandated reporters of suspected financial abuse of an elder or dependent adult..
2. Requires a mandated reporter of suspected elder or dependent adult financial abuse, who has direct contact with the elder or dependent adult, or who reviews or approves the elder or dependent adult’s financial documents, records, or transactions in his or her role as a financial services provider, and who has observed or has knowledge of an incident that reasonably appears to be financial abuse, or who reasonably suspects such abuse, to report the known or suspected abuse as soon as practicably possible to the local adult protective services agency or the local law enforcement agency.
3. Provides that “suspected financial abuse of an elder or dependent adult” occurs when a mandated reporter observes or has knowledge of behavior or unusual circumstances or transactions, or a pattern of behavior or unusual circumstances or transactions, that would lead an individual with like training or experience, based on the same facts, to form a reasonable belief that an elder or dependent adult is the victim of financial abuse.
4. Clarifies that an allegation by an elder or dependent adult or by any other person that financial abuse has occurred is not sufficient to trigger the requirement that a mandated reporter report such abuse, if both of the following conditions are met:
   1. The mandated reporter is aware of no other corroborating or independent evidence of the alleged financial abuse.
   2. In the exercise of his or her professional judgment, the mandated reporter reasonably believes that financial abuse of the elder or dependent adult did not occur.
5. Authorizes a mandated reporter of suspected elder or dependent adult financial abuse to refuse to honor a power of attorney, as defined, if that mandated reporter makes a report that the elder or dependent adult may be subject to financial abuse, as defined under California law or in similar laws of another state, by the person seeking to act under the authority of the power of attorney.
6. Provides that failure of a mandated reporter to report financial abuse is subject to a civil penalty not exceeding $1,000 ($5,000 if the failure to report is willful), which must be paid by the financial institution that employs the mandated reporter.
7. Authorizes the provision of information relevant to an incident of elder or dependent adult abuse to specified persons who are investigating a known or suspected case of elder or dependent adult abuse.

FISCAL EFFECT: Pursuant to Senate Rule 28.8, this bill was not heard in the Senate Appropriations Committee, so a fiscal committee has not yet analyzed it.

COMMENTS:

According to the author, “Financial exploitation is one of the fastest growing categories of elder abuse in the United States. As the baby boom generation ages, California’s senior population is predicted to nearly double over the next two decades – an increase of over 4 million seniors. The National Adult Protective Services Association notes that one in nine seniors reports being abused, neglected, or exploited in the past twelve months, with one in twenty reporting some form of financial mistreatment. Yet, available evidence suggests that only one in 44 cases of financial abuse is ever reported. This bill attempts to address the problem by proposing to codify a modified version of a Model Act developed by the North American Securities Administrators Association (NASAA).”

The regulatory term “broker-dealer” refers to a natural person (an individual) or a firm (a general partnership, limited partnership, limited liability company, corporation, or other entity) that is in the business of buying and selling securities. A broker-dealer conducts the business of buying and selling securities.

Requiring broker-dealers and investment advisors to become mandated reporters is consistent with the duties these securities professionals already have to their clients. The Federal Investment Advisers Act of 1940 already imposes a fiduciary duty on investment advisors in their dealings with their clients. Case law and DBO regulations already impose a suitability standard on broker-dealers. For these reasons, this bill can be viewed as a reasonable next step, which builds on the responsibilities broker-dealers and investment advisors already have to their clients.

This bill has five substantive provisions, two of which are virtually identical to those that currently apply to bank and credit union employees, and three of which are new to California law but have been adopted by several other states.

Making broker-dealers and investment advisors mandated reporters of financial abuse (similar to the rules applicable to banks and credit unions). With one exception, the mandated reporting requirements of this bill are identical to those which have applied to banks and credit union officers and employees since 2007, and which have been credited with identifying and preventing financial fraud that could have been devastating to the intended victims. The unique aspect of this bill is its requirement that broker-dealers and investment advisors make reports to three entities (adult protective services/local ombudsperson, local law enforcement agency, and DBO). Bank and credit union employees may choose to report either to local adult protective services/the local ombudsperson or to the local law enforcement agency.

Allowing broker-dealers and investment advisors to refuse to honor a power of attorney in instances of suspected financial abuse (identical to the rules applicable to banks and credit unions). This provision is identical to authority that was given to bank and credit union officers and employees, effective January 1, 2018. Because of the relatively short period of time this provision has been in effect for banks and credit unions, information is unavailable regarding its impact.

Allowing broker-dealers and investment advisors to notify trusted third parties regarding suspected abuse (not applicable to banks and credit unions). This bill allows broker-dealers and investment advisors who make a report of suspected financial abuse to additionally notify a trusted third party identified by the elder or dependent adult for that purpose. This provision is intended to help ensure that someone known to and trusted by the elder or dependent adult is aware that a report has been made.

Provisions similar to the one in this bill have already been adopted by 19 other states and are based on rules that already apply to securities professionals. Financial Industry Regulatory Authority Rule 4512.06 requires securities professionals to disclose to each customer that the customer may identify a trusted contact person, who can be contacted by the securities professional for a variety of different purposes, including reports of possible financial exploitation. Thus, the concept of a trusted third party is already in use by securities professionals; this bill simply codifies the ability of securities professionals to notify those trusted third parties after they have reported suspected financial abuse.

Allowing broker-dealers and investment advisors to temporarily delay disbursements or transactions (not applicable to banks and credit unions). Provisions of this bill that allow securities professionals to temporarily delay disbursements or other account transactions when they suspect financial abuse likely have the greatest potential to cross the line between abuse prevention and intrusive over-protection. For that reason, this bill imposes a higher standard on securities professionals, before they may delay transactions or disbursements, relative to the standards that apply to the other provisions of this bill. Specifically, before delaying a disbursement or transaction, a mandated reporter must initiate an internal review of the requested disbursement or transaction and the suspected financial abuse and must have a reasonable belief, following that review, that the requested transaction or disbursement may result in financial abuse. The requirement to conduct an internal review goes beyond what is necessary to substantiate an initial report of suspected financial abuse.

Authorizing the disclosure of information to mandated reporters (not applicable to banks and credit unions). Finally, this bill authorizes broker-dealers and investment advisors who have reported suspected financial abuse to check back in with the organizations they notified to check on the general status or final disposition of an investigation that followed the report. Absent this authority, securities professionals will have no way of knowing whether their reports helped identify financial abuse or were false alarms

REGISTERED SUPPORT / OPPOSITION:

Support

California District Attorneys Association (CDAA)

Financial Services Institute

Security Industry and Financial Markets Association

Opposition

None on file.

Analysis Prepared by: Barry Brewer / AGING & L.T.C. / (916) 319-3990

 THIRD READING  

Bill No: SB 496

Author: Moorlach (R)

Amended: 5/15/19

Vote: 21

SENATE BANKING & F.I. COMMITTEE: 7-0, 4/10/19

AYES: Bradford, Chang, Caballero, Durazo, Hueso, Morrell, Portantino

SENATE JUDICIARY COMMITTEE: 9-0, 4/23/19

AYES: Jackson, Borgeas, Allen, Caballero, Jones, Monning, Stern, Umberg, Wieckowski

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

SUBJECT: Financial abuse of elder or dependent adults

SOURCE: Author

DIGEST:

This bill adds broker-dealers and investment advisors to the categories of persons who are mandated reporters of suspected abuse of an elder or dependent adult; allows mandated reporters who report suspected abuse to notify a trusted contact person previously designated by the elder or dependent adult for that purpose, as specified; and allows mandated reporters to temporarily delay requested account transactions and disbursements of elder or dependent adults, as specified.

Senate Floor Amendments of 5/15/19 clarify that the provision of the bill which gives broker-dealers and investment advisors authority to notify trusted contact persons does not impact the ability of those mandated reporters to make other, legally allowable notifications.

ANALYSIS:

Existing law:

1. Makes all officers and employees of financial institutions, as defined, mandated reporters of suspected financial abuse of an elder or dependent adult (Welfare and Institutions Code Section 15630.1).
2. Requires a mandated reporter of suspected elder or dependent adult financial abuse, who has direct contact with the elder or dependent adult, or who reviews or approves the elder or dependent adult’s financial documents, records, or transactions in his or her role as a financial services provider, and who has observed or has knowledge of an incident that reasonably appears to be financial abuse, or who reasonably suspects such abuse, to report the known or suspected abuse as soon as practicably possible to the local adult protective services agency or the local law enforcement agency (Welfare and Institutions Code Section 15630.1).
3. Provides that “suspected financial abuse of an elder or dependent adult” occurs when a mandated reporter observes or has knowledge of behavior or unusual circumstances or transactions, or a pattern of behavior or unusual circumstances or transactions, that would lead an individual with like training or experience, based on the same facts, to form a reasonable belief that an elder or dependent adult is the victim of financial abuse, as defined (Welfare and Institutions Code Section 15630.1).
4. Clarifies that an allegation by an elder or dependent adult or by any other person that financial abuse has occurred is not sufficient to trigger the requirement that a mandated reporter report such abuse, if both of the following conditions are met (Welfare and Institutions Code Section 15630.1):
   1. The mandated reporter is aware of no other corroborating or independent evidence of the alleged financial abuse.
   2. In the exercise of his or her professional judgment, the mandated reporter reasonably believes that financial abuse of the elder or dependent adult did not occur.
5. Authorizes a mandated reporter of suspected elder or dependent adult financial abuse to refuse to honor a power of attorney, as defined, if that mandated reporter makes a report that the elder or dependent adult may be subject to financial abuse, as defined under California law or in similar laws of another state, by the person seeking to act under the authority of the power of attorney (Welfare and Institutions Code Section 15630.1).
6. Provides that failure of a mandated reporter to report financial abuse is subject to a civil penalty not exceeding $1,000 ($5,000 if the failure to report is willful), which must be paid by the financial institution that employs the mandated reporter (Welfare and Institutions Code Section 15630.1).
7. Authorizes the provision of information relevant to an incident of elder or dependent adult abuse to specified persons who are investigating a known or suspected case of elder or dependent adult abuse (Welfare and Institutions Code Section 15633.5).

This bill:

1. Creates a new section of law, separate from but based on the section currently applicable to banks and credit unions, which makes broker-dealers, as defined in Section 25004 of the Corporations Code, and investment advisors, as defined in Section 25009 of the Corporations Code mandated reporters of suspected financial abuse of an elder or dependent adult. Requires reporting when a broker-dealer or investment advisor observes or has knowledge of an incident that reasonably appears to be financial abuse or when the person reasonably believes the existence of that abuse. Except as provided below, the requirements that this bill imposes on broker-dealers and investment advisors are identical to those currently imposed on banks and credit unions.
2. Requires broker-dealers and investment advisors to report suspected financial abuse to the local adult protective services agency (or the local ombudsperson, if the elder or dependent adult resides in a long-term care facility), the local law enforcement agency, and the Department of Business Oversight (DBO). Mandated reporters at banks and credit unions have a choice of reporting either to a local adult protective services agency (or ombudsperson, if the elder or dependent adult resides in a long-term care facility) or a local law enforcement agency.
3. Authorizes a broker-dealer or investment advisor who reports suspected financial abuse to additionally notify any trusted contact person who had had previously been identified by the elder or dependent adult for that purpose, unless that third party is suspected of the abuse. Existing law contains no similar provision applicable to banks and credit unions.
4. Authorizes a broker-dealer or investment advisor to temporarily delay a requested disbursement from, or requested transaction involving, an account of an elder or dependent adult or an account to which an elder or dependent adult is a beneficiary, if the mandated reporter meets all of the following conditions:
   1. Has a reasonable belief, after initiating an internal review of the requested disbursement or transaction and the suspected financial abuse, that the requested disbursement or transaction may result in the financial abuse of an elder or dependent adult.
   2. Immediately, but no later than two business days after the disbursement or transaction is delayed, provides written notification of the delay and the reason for the delay to all parties authorized to transact business on the account, unless a party is reasonably believed to have engaged in suspected financial abuse of the elder or dependent adult.
   3. Immediately, but no later than two business days after the requested disbursement or transaction is delayed, notifies the local adult protective services agency, local law enforcement agency, and DBO about the delay, and subsequently provides these agencies with any updates relevant to the initial report.
   4. Existing law contains no similar provision allowing banks and credit unions to delay disbursements or transactions if financial abuse is suspected.
5. Provides that any delay of a disbursement or a transaction expires the earlier of either of the following:
   1. A determination by the mandated reporter that the disbursement or transaction will not result in financial abuse of the elder or dependent adult, provided that the mandated reporter first consults with the local county adult protective services agency, local law enforcement agency, and DBO and receives no objection from those entities.
   2. Fifteen business days after the date on which the mandated reporter first delayed the disbursement or transaction, unless the local adult protective services agency, local law enforcement agency, or DBO requests that the mandated reporter extend the delay. An extended delay expires no more than 25 business days after the date of the original delay, unless terminated earlier by the entity requesting the extended delay or by a court of competent jurisdiction.
6. Authorizes a court of competent jurisdiction to enter an order extending any delay or to order other protective relief based on the petition of an adult protective services agency, the mandated reporter, or other interested party.
7. Provides broker-dealers and investment advisors with immunity from civil liability if they delay a disbursement or transaction in good faith and with reasonable care and in accordance with the aforementioned rules.
8. Authorizes a local adult protective services agency, local law enforcement agency, or DBO to disclose the general status or final disposition of any investigation arising from a report made by a mandated reporter, upon request from that mandated reporter. This authority is unique to broker-dealers and investment advisors; no similar authority allows banks and credit unions to request information regarding the general status or final disposition of reports they make.
9. Requires the provision of information relevant to an incident of elder or dependent adult abuse to specified persons who are investigating a known or suspected case of elder or dependent adult abuse and adds DBO to the list of organizations whose investigators may receive such information. Existing law authorizes, rather than requires, the provision of this information.
10. Makes related, conforming changes.

Background

This bill is intended to help bolster California’s laws protecting elder and dependent adults against financial abuse by expanding the mandated reporter law to broker-dealers and investment advisors. According to the author’s office, financial exploitation is one of the fastest growing categories of elder abuse in the United States. As the baby boom generation ages, California’s senior population is predicted to nearly double over the next two decades – an increase of over 4 million seniors. The National Adult Protective Services Association notes that one in nine seniors reports being abused, neglected, or exploited in the past twelve months, with one in twenty reporting some form of financial mistreatment. Yet, available evidence suggests that only one in 44 cases of financial abuse is ever reported.

This bill attempts to address the problem by proposing to codify a modified version of a Model Act developed by the North American Securities Administrators Association (NASAA). According to NASAA, 19 states had enacted Model Act legislation through January 30 of this year, and similar legislation was pending in five states, including California.

Comments

Requiring broker-dealers and investment advisors to become mandated reporters is consistent with the duties these securities professionals already have to their clients. The federal Investment Advisers Act of 1940 already imposes a fiduciary duty on investment advisors in their dealings with their clients. Case law and DBO regulations already impose a suitability standard on broker-dealers. For these reasons, this bill can be viewed as a reasonable next step, which builds on the responsibilities broker-dealers and investment advisors already have to their clients.

However, like other elder and dependent adult financial abuse mandated reporter bills, SB 496 must tread a delicate path. While no one would argue against the importance of protecting elders and dependent adults from financial abuse, protections must be carefully crafted to minimize the possibility that competent individuals will be prevented from transacting their financial affairs due to overzealous do-gooders. Many seniors retain sharp minds well into their 80s, 90s, and beyond, and will fiercely defend their independence and right to make their own financial decisions. Many dependent adults are similarly competent and resistant to interference in their financial decisions. The requirements of this bill attempt to strike a balance between these two competing goals.

This bill has five substantive provisions, two of which are virtually identical to those that currently apply to bank and credit union employees, and three of which are new to California law but have been adopted by several other states.

Making broker-dealers and investment advisors mandated reporters of financial abuse (similar to the rules applicable to banks and credit unions). With one exception, the mandated reporting requirements of this bill are identical to those which have applied to banks and credit union officers and employees since 2007, and which have been credited with identifying and preventing financial fraud that could have been devastating to the intended victims. The unique aspect of this bill is its requirement that broker-dealers and investment advisors make reports to three entities (adult protective services/local ombudsperson, local law enforcement agency, and DBO). Bank and credit union employees may choose to report either to local adult protective services/the local ombudsperson or to the local law enforcement agency.

Allowing broker-dealers and investment advisors to refuse to honor a power of attorney in instances of suspected financial abuse (identical to the rules applicable to banks and credit unions). This provision is identical to authority that was given to bank and credit union officers and employees, effective January 1, 2018. Because of the relatively short period of time this provision has been in effect for banks and credit unions, information is unavailable regarding its impact.

Allowing broker-dealers and investment advisors to notify trusted third parties regarding suspected abuse (not applicable to banks and credit unions). This bill allows broker-dealers and investment advisors who make a report of suspected financial abuse to additionally notify a trusted third party identified by the elder or dependent adult for that purpose. This provision is intended to help ensure that someone known to and trusted by the elder or dependent adult is aware that a report has been made.

Provisions similar to the one in this bill have already been adopted by 19 other states and are based on rules that already apply to securities professionals. Financial Industry Regulatory Authority Rule 4512.06 requires securities professionals to disclose to each customer that the customer may identify a trusted contact person, who can be contacted by the securities professional for a variety of different purposes, including reports of possible financial exploitation. Thus, the concept of a trusted third party is already in use by securities professionals; this bill simply codifies the ability of securities professionals to notify those trusted third parties after they have reported suspected financial abuse.

Allowing broker-dealers and investment advisors to temporarily delay disbursements or transactions (not applicable to banks and credit unions). Provisions of this bill that allow securities professionals to temporarily delay disbursements or other account transactions when they suspect financial abuse likely have the greatest potential to cross the line between abuse prevention and intrusive over-protection. For that reason, this bill imposes a higher standard on securities professionals, before they may delay transactions or disbursements, relative to the standards that apply to the other provisions of this bill. Specifically, before delaying a disbursement or transaction, a mandated reporter must initiate an internal review of the requested disbursement or transaction and the suspected financial abuse and must have a reasonable belief, following that review, that the requested transaction or disbursement may result in financial abuse. The requirement to conduct an internal review goes beyond what is necessary to substantiate an initial report of suspected financial abuse.

Authorizing the disclosure of information to mandated reporters (not applicable to banks and credit unions). Finally, this bill authorizes broker-dealers and investment advisors who have reported suspected financial abuse to check back in with the organizations they notified to check on the general status or final disposition of an investigation that followed the report. Absent this authority, securities professionals will have no way of knowing whether their reports helped identify financial abuse or were false alarms.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes

SUPPORT: (Verified 5/17/19)

California District Attorneys Association

Financial Services Institute

OPPOSITION: (Verified 5/13/19)

None received

Prepared by: Eileen Newhall / B. & F.I. /

5/18/19 13:21:14

**** END ****

SENATE JUDICIARY COMMITTEE

Senator Hannah-Beth Jackson, Chair

2019-2020 Regular Session

Bill No: SB 496 (Author:Moorlach)

Version: April 1, 2019

Hearing Date: April 23, 2019

Fiscal: Yes

Urgency: No

Consultant: JDT

SUBJECT

Financial abuse of elder or dependent adults

DIGEST

This bill provides that broker-dealers and investment advisers are mandated reporters of suspected financial abuse of an elder or dependent adult, and allows these reporters to notify a trusted third party and delay disbursements or transactions.

EXECUTIVE SUMMARY

Existing law, the Elder Abuse and Dependent Adult Civil Protection Act (Act), establishes procedures and requirements for the reporting, investigation, and prosecution of elder and dependent adult abuse. The Act immunizes mandated reporters from civil or criminal liability for making these reports but provides civil penalties for failing to report financial abuse, as specified.

This bill, which is modelled after similar legislation adopted in several other states, would make broker-dealers and investment advisers mandated reporters of suspected financial abuse of an elder or dependent adult. The bill would authorize these mandated reporters, after making a report, to (1) notify any third party who has previously been designated by the elder or dependent adult (unless the third party is the suspected abuser) and (2) temporarily delay a requested disbursement or transaction from the suspected victim’s account, subject to certain conditions. The bill would implicitly incorporate the existing immunity provisions applicable to mandated reporters of suspected financial abuse of elders or dependent adults. The bill would also expressly confer immunity for any notification or delayed disbursement or transaction—provisions that the author has agreed to amend to apply only if those acts are undertaken in good faith and with reasonable care. The bill is supported by the California District Attorneys Association and has no known opposition. This bill passed out of the Senate Banking and Financial Institutions Committee by a vote of 7-0.

PROPOSED CHANGES TO THE LAW

Existing law:

1. Establishes the Elder Abuse and Dependent Adult Civil Protection Act (Act). (Welf. & Inst. Code § 15600 et seq.; all further statutory references are to the Welfare and Institutions Code, unless otherwise stated.) Recognizes that elders and dependent adults may be subjected to abuse, neglect, or abandonment and that California has a responsibility to protect those persons. (§ 15600(a).) States that the purposes of the Act are to do the following:
   1. require health practitioners, care custodians, clergy members, and employees of county adult protective services agencies and local law enforcement agencies to report known or suspected cases of abuse of elders and dependent adults and to encourage community members in general to make such reports;
   2. collect information on the numbers of abuse victims, circumstances surrounding the act of abuse, and other data that will aid the state in establishing adequate services to aid all victims of abuse in a timely, compassionate manner; and
   3. provide for protection under the law for all those persons who report suspected cases of abuse, provided that the report is not made with malicious intent. (§ 15601.)
2. Defines certain terms for purposes of the Act, including the following:
   1. “Dependent adult” means a person, regardless of whether the person lives independently, between the ages of 18 and 64 years who resides in this state and who has physical or mental limitations that restrict their ability to carry out normal activities or to protect their rights, including, but not limited to, persons who have physical or developmental disabilities, or whose physical or mental abilities have diminished because of age. “Dependent adult” includes any person between the ages of 18 and 64 years who is admitted as an inpatient to a 24-hour health facility meeting certain specifications. (§ 15610.23.)
   2. “Elder” means any person residing in California who is 65 years of age or older. (§ 15610.25.)
   3. “Financial abuse” of an elder or dependent adult occurs when the person or entity takes, secretes, appropriates, obtains, or retains property of an elder or dependent adult, or assists in those acts, for a wrongful use, intent to defraud, or does so by undue influence, as specified. (§ 156310.30.)
   4. “Mandated reporter of suspected financial abuse of an elder or dependent adult” means all officers and employees of financial institutions, including banks, credit unions, and other depository institutions. (§ 15630.1.)
3. Provides that a mandated reporter of suspected financial abuse who has direct contact with the elder or dependent adult or who reviews or approves the elder or dependent adult’s financial documents, records, or transactions, or who has observed or has knowledge of an incident that reasonably appears to be financial abuse, or who reasonably suspects that abuse, to report the known or suspected financial abuse to an adult protective services agency or local law enforcement agency as soon as practicably possible. (§ 15630.1(d)(1).)
4. Authorizes a mandated reporter of suspected elder or dependent adult financial abuse to refuse to honor a power of attorney, as defined, if that mandated reporter makes a report that the elder or dependent adult may be subject to financial abuse, as provided. (§ 15630.1.)
5. Provides that a mandated reporter of financial abuse who fails to make a report, as required, is subject to a civil penalty not to exceed $1,000, unless the failure is deemed willful, in which case a civil penalty not to exceed $5,000 must be paid by the financial institution to the Attorney General, district attorney, or county counsel bringing the action. (§ 15630.1(f), (g).)
6. Further provides that failure to report, or impeding or inhibiting a report of, among other things, financial abuse, is a misdemeanor punishable by up to six months in county jail and a fine of up to $1,000, unless the failure is willful and results in death or great bodily injury, should be punished by up to a year in county jail and a fine of up to $5,000. (§ 15630(h).) However, this provision does not apply to mandated reporters of suspected financial abuse of elders or dependent adults. (§ 15630.1(f).)
7. Provides immunity for any authorized report, as specified, by, among others, a mandated reporter of suspected financial abuse of an elder or dependent adult, unless the reporter knowingly makes a false report. (§ 15634(a).)

This bill:

1. Expands the category of mandated reporters of suspected financial abuse of elders and dependent adults to include the following:
   1. Broker-dealers, which under existing law are generally defined as any person engaged in the business of effecting transactions in securities in this state for the account of others or for their own account, as well as a person engaged in the regular business of issuing or guaranteeing options with regard to securities not of their own issue.
   2. Investment advisers, which under existing law are generally defined as any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing or selling securities, or who, for compensation and as a part of a regular business, publishes analyses or reports concerning securities.
2. Requires these reporters to report known or suspected instances of financial abuse by telephone or through a confidential internet reporting tool under existing law.
3. With regard to reports, incorporates a liability and immunity scheme similar to existing law applicable to mandated reporters of suspected financial abuse of elders and dependent adults.
   1. Specifies that a failure to make a report under this bill’s provisions is punishable by a civil penalty not to exceed $1,000, unless the failure is deemed willful, in which case the penalty may not exceed $5,000. Consistent with existing law applicable to mandated reporters of suspected financial abuse of elders or dependent adults, provides that criminal penalties applicable to certain mandated reporters do not apply to broker-dealers and investment advisers.
   2. With regard to authorized reports, implicitly incorporates the Act’s immunity provisions.
   3. Applies existing confidentiality requirements to reports made under the bill, thereby making it a misdemeanor for the reporter to violate these requirements.
   4. Adds additional immunity provisions with regard to additional powers carried out under the bill’s provisions, as described below.
4. Authorizes a local adult protective services agency, local law enforcement agency, or the Department of Business Oversight (DBO) to disclose the general status or final disposition of any investigation arising from a report made by a mandated reporter, upon request from that mandated reporter.
5. Requires the provision of information relevant to an incident of elder or dependent adult abuse to specified persons who are investigating a known or suspected case of elder or dependent adult abuse and adds the DBO to the list of organizations whose investigators may receive such information. Existing law authorizes, rather than requires, the provision of this information.
6. Authorizes these reporters to notify a previously-designated trusted contact person, unless the person is suspected of abuse.
7. Authorizes a mandated reporter of suspected elder or dependent adult financial abuse to refuse to honor a power of attorney, consistent with existing law.
8. Authorizes these reporters to temporarily delay a requested disbursement or transaction from the account of the elder or dependent person, subject to the following requirements:
   1. the reporter has a reasonable belief, based on a specified internal review, that the disbursement or transaction may result in financial abuse;
   2. within two days, the reporter provides written notice and an explanation of the reason for the delay to all parties authorized to transact on the account, except for parties suspected of the abuse, as well notice to the local county adult protective services agency, local law enforcement agency, and the DBO (the reporter must also keep these entities updated); and
   3. the delay of the disbursement or transaction expires on the sooner of:
      1. a determination by the reporter that the disbursement will not result in financial abuse of the elder or dependent adult;
      2. 15 days after the date on which the disbursement or transaction was delayed, unless extended to up to 25 days from that date by one of the investigating entities, as specified; or
      3. later, if ordered by a court, as specified.
9. Provides that a reporter is not civilly liable for a notification or delay of a disbursement or transaction pursuant to these provisions.
10. Makes related, conforming changes.
    

COMMENTS

1. Financial exploitation of vulnerable adults

According to the North American Securities Administrators Association (NASAA), financial exploitation is the fastest growing categories of elder abuse in many states.^[1] As the baby boomer generation ages, California’s senior population is predicted to nearly double over the next two decades—an increase of over four million seniors. The National Adult Protective Services Association notes that one in nine seniors reports being abused, neglected, or exploited in the past 12 months, with one in 20 reporting some form of financial mistreatment. Yet available evidence suggests that only one in 44 cases of financial abuse are ever reported.

Similarly, individuals with disabilities are at a disproportionately higher risk for abuse. Disability Rights California notes that people with disabilities are four to 10 times more likely to be victimized than people without disabilities. Studies show that most crimes against people with disabilities go unreported.^[2]

This bill attempts to address these problems by proposing to codify a modified version of model legislation developed by NASAA. According to NASAA, 19 states had enacted Model Act legislation through January 30th of this year, and similar legislation was pending in four states, plus California.

2. Financial Elder Abuse Reporting Act of 2005

In 2006, the Legislature enacted the Financial Elder Abuse Reporting Act of 2005 (the Act). (SB 1018, Simitian; Ch. 140, Stats. 2005.) The Act, which was originally set to sunset January 1, 2013, was enacted so that individuals in a position of witnessing elder or dependent adult financial abuse would make timely reports to law enforcement or adult protective services in order to protect elderly and dependent adults from financial predators. Under the Act, all officials and employees of specified financial institutions are considered mandated reporters of financial elder abuse. The Act immunizes these mandated reporters from civil or criminal liability for making these reports but provides civil penalties for failing to report financial abuse, as specified.

The Act became operative on January 1, 2007. In April 2007, Adult Protective Services of the California Department of Social Services began tracking reports of financial abuse of elder and dependent adults. Between April 2007 and 2010, financial institutions submitted 26,402 reports of elder financial abuse. (SB 33 (Simitian, Ch. 372, Stats. 2011) Senate Judiciary Committee Analysis (April 12, 2011).) In 2011, the 2013 sunset provision was removed because of the success of the program. Proponents of the removal argued that the protections provided by the Act were critical to the financial protection of seniors and dependent adults. It was said to have “helped stem the tide of financial abuse cases against elder and dependent adults… [because] the financial service providers at banks and credit unions are in a key position to spot financial exploitation and make timely reports to law enforcement or Adult Protective Services.” (Id.) The timely reporting was said to be critical to preventing the swift depletion of an elderly or dependent adult’s life savings by a financial predator. (Id.).

3. Immunity for notifications and delayed transactions or disbursements

1. Policy background

Liability has the primary effect of ensuring that some measure of recourse exists for those persons injured by the negligent or willful acts of others; the risk of that liability has the primary effect of ensuring parties act reasonably to avoid harm to those to whom they owe a duty. As a general rule, California law provides that everyone is responsible, not only for the result of their willful acts, but also for an injury occasioned to another by their want of ordinary care or skill in the management of their property or person, except so far as the latter has, willfully or by lack of ordinary care, caused their own injury. (Civ. Code § 1714(a).)

Although immunity provisions are rarely preferable because they, by their nature, prevent an injured party from seeking a particular type of recovery, the Legislature has in limited circumstances allowed for measured immunity from liability to promote other policy goals that could benefit the public. Immunity provisions are sometimes allowed when necessary to ensure the willingness of individuals to continue taking on certain roles that may involve some risk.

1. Liability and immunity applicable to mandated reporters of suspected financial abuse of an elder or dependent adult under existing law

The Legislature has granted broad immunity to mandated reporters. Section 15634(a) provides immunity for any authorized report, as specified, by, among others, a mandated reporter of suspected financial abuse of an elder or dependent adult. This section has been interpreted to confer absolute rather than qualified immunity for individuals required to report suspected elder or dependent adult abuse, as well as for specified individuals who facilitate access to the victims of suspected abuse. (Easton v. Sutter Coast Hosp. (2000) 80 Cal.App. 4th 485, 491 [stating that the immunity provided in the statute is “sweeping in its breadth”].) Additionally, the Act’s immunity provision protects mandated reporters from liability for conduct that is integrally related to a report of suspected elder abuse. (Santos v. Kisco Senior Living, LLC (2016) 1 Cal. App. 5th 862 [immunity applied to a mandated reporter’s act of signing a form to effectuate a citizen’s arrest of an employee falsely accused of financial abuse of elders because the act was undertaken in connection with a police investigation into the suspected abuse occasioned by the mandated reporter’s report].) Courts have also repeatedly recognized the breadth of immunity contained in the similar immunity provision applicable to mandated reporters of suspected child abuse in Penal Code section 11172. (See id. at pp. 873-874 [discussing cases].)

Although the immunity provided under existing law is broad, it provides exceptions if the person acts willfully or maliciously. Thus, section 15634(a) provides that “[a]ny other person reporting a known or suspected instance of abuse of an elder or dependent adult shall not incur civil or criminal liability as a result of any report authorized by this article, unless it can be proven that a false report was made and the person knew that the report was false.”

As described below, this bill incorporates the existing immunity scheme in some respects. However, in other respects—namely, notifications to trusted third parties and delayed transactions and disbursements—it would shield reporters from criminal and civil liability, even if they acted knowingly or carelessly.

1. Implicitly incorporates the immunity provisions for authorized reports

This bill would extend reporting duties to broker-dealers or investment advisors who, within the scope of their employment or professional practice, learn of or reasonably suspect financial abuse of elders or dependent adults. These reporters would, as soon as practicably possible, be required to report instances of financial abuse by telephone or through a confidential internet reporting tool under existing law. These reports must be made to the local adult protective services agency (or in the case of elder or dependent adults living in long-term care facility, the local ombudsperson), the local law enforcement agency, and the DBO. Under existing law, mandated reporters at banks and credit unions may report to any of those authorities.

With regard to civil immunity for authorized reports, this bill, by defining “mandated reporters of suspected financial abuse of an elder or dependent adult” to include broker-dealers and investment advisers, would likely be construed to incorporate the existing immunity scheme described above, which applies to any “care custodian, clergy member, health practitioner, mandated reporter of suspected financial abuse of an elder or dependent adult, or employee of an adult protective services agency or a local law enforcement agency who reports a known or suspected instance of abuse of an elder or dependent adult.” (§ 15634(a); emphasis added.) These reporters are generally immune from liability “unless it can be proven that a false report was made and the person knew that the report was false.” (Id.)

1. Author’s amendments to the bill’s provisions that establish immunity from civil liability for notifications to trusted third parties and delays of disbursements and transactions

In addition to reporting duties, this bill authorizes a broker-dealer or investment advisor who reports suspected financial abuse to notify any trusted contact person who had previously been identified by the elder or dependent adult for that purpose, unless that third party is suspected of the abuse. This provision is intended to help ensure that someone known to and trusted by the elder or dependent adult is aware that a report has been made.

The bill also authorizes a mandated reporter of suspected financial abuse of an elder or dependent adult to temporarily delay a requested disbursement from, or a requested transaction involving, an account of an elder or dependent adult or an account to which an elder or dependent adult is a beneficiary. Before delaying a disbursement or transaction, a mandated reporter must initiate an internal review of the requested disbursement or transaction and the suspected financial abuse and must have a reasonable belief, following that review, that the requested transaction or disbursement may result in financial abuse.

These additional steps are likely to protect elders and dependent adults from financial abuse. However, for both of these additional powers, the bill provides that the reporter “shall not be civilly liable,” regardless of whether they do so in bad faith or in a careless manner. No justification has been offered for shielding misconduct. The “sweeping” immunity provisions for reports made under existing law do not shield willful false reporting. And the model NASSAA legislation on which this bill is based goes further by providing for immunity only if the reporter acts in good faith and exercises reasonable care—the standard applicable to negligence. Consequently, the author has agreed to amend these immunity provisions to ensure that reporters acting in bad faith or without due care are not shielded from liability. Those amendments are as follows:

Amendment 1

On page 10, line 15, add “in good faith and with reasonable care” after “made.”

Amendment 2

On page 12, line 5, add “in good faith and with reasonable care” after “made.”

Additionally, the bill would provide that the delay of the disbursement or transaction expires on the sooner of (1) a determination by the reporter that the disbursement will not result in financial abuse of the elder or dependent adult or (2) 15 days after the date on which the disbursement or transaction was delayed, unless extended to up to 25 days from that date by one of the investigating entities, as specified, unless a court orders it to be delayed longer. Thus, as the investigating entities that have been notified of the delay are looking into the alleged financial abuse, the bill enables the reporter, without first consulting with those entities, to unilaterally terminate the delay upon finding that financial abuse would not occur. This could subvert the investigatory process that is underway and does not impose any accountability on the reporter to ensure that the delay is not unduly terminated. Consequently, the author has agreed to amend the bill to require the reporter to first consult with the investigating entities. That amendment is as follows:

Amendment 3

On page 11, line 26, after “adult” insert “provided that the mandated reporter first consults with the local county adult protective services agency, local law enforcement agency, and the Department of Business Oversight, and receives no objection from those entities.”

4. Additional technical amendments

Subdivision (h) of Section 1 of the bill contains a drafting error, as it repeats the same phrase twice: “A mandated reporter of suspected financial abuse of an elder or dependent adult who makes a report pursuant to this section may notify any trusted contact person who had previously been designated by the elder or dependent adult to receive notification of known or suspected financial abuse of any known or suspected financial abuse, unless the trusted contact person is suspected of the financial abuse.” This error can be fixed by striking the first use of the term. The author has agreed to the following amendments:

Amendment 4

On page 10, line 10 strike “of known or suspected financial abuse”

An additional technical amendment is needed to fix an erroneous cross reference:

Amendment 5

On page 13, line 4, strike “15630” and add “15630.2”

Additionally, this bill was heard in the Senate Banking and Financial Institutions Committee on April 10 and passed, with a technical amendment, by a vote of 7-0. Due to timing constraints, that amendment must be taken in this Committee. The amendment is as follows:

Amendment 6

On page 11, line 17, add the words “about the delay” at the end of the sentence.

5. Stated intent of the bill

According to the author:

The fastest growing form of abuse of elders and adults with disabilities is financial exploitation. The National Adult Protective Services Association notes that one in nine seniors report being abused, neglected or exploited in the span of a year, one in twenty elder adults reported financial mistreatment, and only one in forty-four cases of financial abuse are ever reported. The Public Policy Institute of California notes that the senior population is predicted to double over the next two decades, with the over-65 population 87 percent higher in 2030 than in 2012, adding pressure to California's need to take action on addressing financial exploitation.

SB 496 was crafted with input from many leading securities experts and was inspired by the Model Act to Protect Vulnerable Adults from Financial Exploitation introduced by the North American Securities Administrators Association. This legislation will provide new tools for broker-dealers and investment advisors to combat suspected financial abuse by establishing a mandatory reporting requirement. This is just one step in the direction needed to be taken in California to prepare for our growing elderly population.

SUPPORT

California District Attorneys Association

OPPOSITION

None known

RELATED LEGISLATION

Pending Legislation: AB 797 (Grayson, 2019) would require a business that is licensed under the Money Transmission Act whose primary business function is transmitting money, that operates out of a physical storefront or location and that does not engage in other transactions, to provide notice to customers who are 65 years of age or older making the customer aware that fraud has been committed in recent years by means of money transmittals, as specified. That bill is pending in the Assembly Committee on Aging and Long Term Care.

Prior Legislation:

AB 611 (Dababneh, Ch. 408, Stats. 2017) authorized a mandated reporter who is a bank or credit union officer or employee to refuse to honor a power of attorney, if that mandated reporter makes a report that the elder or dependent adult may be subject to financial abuse, as specified.

AB 1525 (Allen and Alejo, Ch. 632, Stats. 2012) required money transmission licensees to provide each of their agents with training materials on recognizing elder or dependent adult financial abuse, and on the appropriate response to suspected elder or dependent adult financial abuse in a transaction.

SB 33 (Simitian, Ch. 372, Stats. 2011) deleted the sunset date on the Financial Elder Abuse Reporting Act of 2005.

SB 1018 (Simitian, Ch. 140, Stats. 2005) enacted the original Financial Elder Abuse Reporting Act of 2005, applicable to employees and officers of banks and credit unions, effective from January 1, 2007 through December 31, 2012.

PRIOR VOTES:

Senate Banking and Financial Institutions Committee (Ayes 7, Noes 0)

**************

1. NASAA Model Act to Protect Vulnerable Adults from Financial Exploitation and 2019 Commentary, p. 1. ↑

2. Disability Rights California, Principle: Abuse and Neglect Advocacy (2017). ↑

SENATE COMMITTEE ON

BANKING AND FINANCIAL INSTITUTIONS

Senator Steven Bradford, Chair

2019 - 2020 Regular

Bill No: SB 496 Hearing Date: April 10, 2019

Subject: Financial abuse of elder or dependent adults

SUMMARY

This bill adds broker-dealers and investment advisers to the categories of persons who are mandated reporters of suspected abuse of an elder or dependent adult; allows mandated reporters who report suspected abuse to notify a trusted contact person previously designated by the elder or dependent adult for that purpose, as specified; and allows mandated reporters to temporarily delay requested account transactions and disbursements of elder or dependent adults, as specified.

EXISTING LAW

1. Makes all officers and employees of financial institutions, as defined, mandated reporters of suspected financial abuse of an elder or dependent adult (Welfare and Institutions Code Section 15630.1).
   
2. Requires a mandated reporter of suspected elder or dependent adult financial abuse, who has direct contact with the elder or dependent adult, or who reviews or approves the elder or dependent adult’s financial documents, records, or transactions in his or her role as a financial services provider, and who has observed or has knowledge of an incident that reasonably appears to be financial abuse, or who reasonably suspects such abuse, to report the known or suspected abuse as soon as practicably possible to the local adult protective services agency or the local law enforcement agency (Welfare and Institutions Code Section 15630.1).
   
3. Provides that “suspected financial abuse of an elder or dependent adult” occurs when a mandated reporter observes or has knowledge of behavior or unusual circumstances or transactions, or a pattern of behavior or unusual circumstances or transactions, that would lead an individual with like training or experience, based on the same facts, to form a reasonable belief that an elder or dependent adult is the victim of financial abuse, as defined (Welfare and Institutions Code Section 15630.1).
   
4. Clarifies that an allegation by an elder or dependent adult or by any other person that financial abuse has occurred is not sufficient to trigger the requirement that a mandated reporter report such abuse, if both of the following conditions are met (Welfare and Institutions Code Section 15630.1):
   
   1. The mandated reporter is aware of no other corroborating or independent evidence of the alleged financial abuse.
      
   2. In the exercise of his or her professional judgment, the mandated reporter reasonably believes that financial abuse of the elder or dependent adult did not occur.
      
5. Authorizes a mandated reporter of suspected elder or dependent adult financial abuse to refuse to honor a power of attorney, as defined, if that mandated reporter makes a report that the elder or dependent adult may be subject to financial abuse, as defined under California law or in similar laws of another state, by the person seeking to act under the authority of the power of attorney (Welfare and Institutions Code Section 15630.1).
   
6. Provides that failure of a mandated reporter to report financial abuse is subject to a civil penalty not exceeding $1,000 ($5,000 if the failure to report is willful), which must be paid by the financial institution that employs the mandated reporter (Welfare and Institutions Code Section 15630.1).
   
7. Authorizes the provision of information relevant to an incident of elder or dependent adult abuse to specified persons who are investigating a known or suspected case of elder or dependent adult abuse (Welfare and Institutions Code Section 15633.5).

THIS BILL

1. Creates a new section of law, separate from but based on the section currently applicable to banks and credit unions, which makes broker-dealers, as defined in Section 25004 of the Corporations Code, and investment advisors, as defined in Section 25009 of the Corporations Code mandated reporters of suspected financial abuse of an elder or dependent adult. Requires reporting when a broker-dealer or investment advisor observes or has knowledge of an incident that reasonably appears to be financial abuse or when the person reasonably believes the existence of that abuse. Except as provided below, the requirements that this bill imposes on broker-dealers and investment advisors are identical to those currently imposed on banks and credit unions.
   
2. Requires broker-dealers and investment advisors to report suspected financial abuse to the local adult protective services agency (or the local ombudsperson, if the elder or dependent adult resides in a long-term care facility), the local law enforcement agency, and the Department of Business Oversight (DBO). Mandated reporters at banks and credit unions have a choice of reporting either to a local adult protective services agency (or ombudsperson, if the elder or dependent adult resides in a long-term care facility) or a local law enforcement agency.
   
3. Authorizes a broker-dealer or investment advisor who reports suspected financial abuse to additionally notify any trusted contact person who had had previously been identified by the elder or dependent adult for that purpose, unless that third party is suspected of the abuse. Existing law contains no similar provision applicable to banks and credit unions.
   
4. Authorizes a broker-dealer or investment advisor to temporarily delay a requested disbursement from, or requested transaction involving, an account of an elder or dependent adult or an account to which an elder or dependent adult is a beneficiary, if the mandated reporter meets all of the following conditions:
   
   1. Has a reasonable belief, after initiating an internal review of the requested disbursement or transaction and the suspected financial abuse, that the requested disbursement or transaction may result in the financial abuse of an elder or dependent adult.
      
   2. Immediately, but no later than two business days after the disbursement or transaction is delayed, provides written notification of the delay and the reason for the delay to all parties authorized to transact business on the account, unless a party is reasonably believed to have engaged in suspected financial abuse of the elder or dependent adult.
      
   3. Immediately, but no later than two business days after the requested disbursement or transaction is delayed, notifies the local adult protective services agency, local law enforcement agency, and DBO, and subsequently provides these agencies with any updates relevant to the initial report.
      

Existing law contains no similar provision allowing banks and credit unions to delay disbursements or transactions if financial abuse is suspected.

1. Provides that any delay of a disbursement or a transaction expires the earlier of either of the following:
   
   1. A determination by the mandated reporter that the disbursement or transaction will not result in financial abuse of the elder or dependent adult.
      
   2. Fifteen business days after the date on which the mandated reporter first delayed the disbursement or transaction, unless the local adult protective services agency, local law enforcement agency, or DBO requests that the mandated reporter extend the delay. An extended delay expires no more than 25 business days after the date of the original delay, unless terminated earlier by the entity requesting the extended delay or by a court of competent jurisdiction.
      
2. Authorizes a court of competent jurisdiction to enter an order extending any delay or to order other protective relief based on the petition of an adult protective services agency, the mandated reporter, or other interested party.
   
3. Provides broker-dealers and investment advisors with immunity from civil liability if they delay a disbursement or transaction in accordance with the aforementioned rules.
   
4. Authorizes a local adult protective services agency, local law enforcement agency, or DBO to disclose the general status or final disposition of any investigation arising from a report made by a mandated reporter, upon request from that mandated reporter. This authority is unique to broker-dealers and investment advisors; no similar authority allows banks and credit unions to request information regarding the general status or final disposition of reports they make.
   
5. Requires the provision of information relevant to an incident of elder or dependent adult abuse to specified persons who are investigating a known or suspected case of elder or dependent adult abuse and adds DBO to the list of organizations whose investigators may receive such information. Existing law authorizes, rather than requires, the provision of this information.
   
6. Makes related, conforming changes.
   

COMMENTS

1. Purpose: This bill is intended to help bolster California’s laws protecting elder and dependent adults against financial abuse by expanding the mandated reporter law to broker-dealers and investment advisors.
   
2. Background: According to the author’s office, financial exploitation is one of the fastest growing categories of elder abuse in the United States. As the baby boom generation ages, California’s senior population is predicted to nearly double over the next two decades – an increase of over 4 million seniors. The National Adult Protective Services Association notes that one in nine seniors reports being abused, neglected, or exploited in the past twelve months, with one in twenty reporting some form of financial mistreatment. Yet, available evidence suggests that only 1 in 44 cases of financial abuse is ever reported.
   
   This bill attempts to address the problem by proposing to codify a modified version of a Model Act developed by the North American Securities Administrators Association (NASAA). According to NASAA, 19 states had enacted Model Act legislation through January 30^th of this year, and similar legislation was pending in five states, including California. Of note, the Securities Industry and Financial Markets Association (SIFMA; the largest trade association representing broker-dealers and investment advisors) has generally supported other state efforts to adopt the NASAA Model Act, albeit with amendments.
   
   The April 1, 2019 version of SB 496 that is currently before this committee reflects input from NASAA, SIFMA, the Financial Services Institute, and the California Bankers Association, although SIFMA continues to seek additional amendments.
   
3. Discussion: Requiring broker-dealers and investment advisors to become mandated reporters is consistent with the duties these securities professionals already have to their clients. The federal Investment Advisers Act of 1940 already imposes a fiduciary duty on investment advisors in their dealings with their clients. Case law and DBO regulations already impose a suitability standard on broker-dealers. For these reasons, this bill can be viewed as a reasonable next step, which builds on the responsibilities broker-dealers and investment advisors already have to their clients.
   
   However, like other elder and dependent adult financial abuse mandated reporter bills, SB 496 must tread a delicate path. While no one would argue against the importance of protecting elders and dependent adults from financial abuse, protections must be carefully crafted to minimize the possibility that competent individuals will be prevented from transacting their financial affairs due to overzealous do-gooders. Many seniors retain sharp minds well into their 80s, 90s, and beyond, and will fiercely defend their independence and right to make their own financial decisions. Many dependent adults are similarly competent and resistant to interference in their financial decisions.
   
   The requirements of this bill attempt to strike a balance between these two competing goals. This bill has five substantive provisions, two of which are virtually identical to those that currently apply to bank and credit union employees, and three of which are new to California law but have been adopted by several other states.
   
   Making broker-dealers and investment advisors mandated reporters of financial abuse (similar to the rules applicable to banks and credit unions): With one exception, the mandated reporting requirements of this bill are identical to those which have applied to banks and credit union officers and employees since 2007, and which have been credited with identifying and preventing financial fraud that could have been devastating to the intended victims. The unique aspect of this bill is its requirement that broker-dealers and investment advisors make reports to three entities (adult protective services/local ombudsperson, local law enforcement agency, and DBO). Bank and credit union employees may choose to report either to local adult protective services/the local ombudsperson or to the local law enforcement agency.
   
   Allowing broker-dealers and investment advisors to refuse to honor a power of attorney in instances of suspected financial abuse (identical to the rules applicable to banks and credit unions): This provision is identical to authority that was given to bank and credit union officers and employees, effective January 1, 2018. Because of the relatively short period of time this provision has been in effect for banks and credit unions, information is unavailable regarding its impact.
   
   Allowing broker-dealers and investment advisors to notify trusted third parties regarding suspected abuse (not applicable to banks and credit unions): This bill allows broker-dealers and investment advisors who make a report of suspected financial abuse to additionally notify a trusted third party identified by the elder or dependent adult for that purpose. This provision is intended to help ensure that someone known to and trusted by the elder or dependent adult is aware that a report has been made.
   
   Provisions similar to the one in this bill have already been adopted by 19 other states and are based on rules that already apply to securities professionals. Financial Industry Regulatory Authority (FINRA) Rule 4512.06 requires securities professionals to disclose to each customer that the customer may identify a trusted contact person, who can be contacted by the securities professional for a variety of different purposes, including reports of possible financial exploitation. Thus, the concept of a trusted third party is already in use by securities professionals; this bill simply codifies the ability of securities professionals to notify those trusted third parties after they have reported suspected financial abuse.
   
   Allowing broker-dealers and investment advisors to temporarily delay disbursements or transactions (not applicable to banks and credit unions): Provisions of this bill that allow securities professionals to temporarily delay disbursements or other account transactions when they suspect financial abuse likely have the greatest potential to cross the line between abuse prevention and intrusive over-protection. For that reason, this bill imposes a higher standard on securities professionals, before they may delay transactions or disbursements, relative to the standards that apply to the other provisions of the bill. Specifically, before delaying a disbursement or transaction, a mandated reporter must initiate an internal review of the requested disbursement or transaction and the suspected financial abuse and must have a reasonable belief, following that review, that the requested transaction or disbursement may result in financial abuse. The requirement to conduct an internal review goes beyond what is necessary to substantiate an initial report of suspected financial abuse.
   
   Authorizing the disclosure of information to mandated reporters (not applicable to banks and credit unions): Finally, this bill authorizes broker-dealers and investment advisors who have reported suspected financial abuse to check back in with the organizations they notified to check on the general status or final disposition of an investigation that followed the report. Absent this authority, securities professionals will have no way of knowing whether their reports helped identify financial abuse or were false alarms.
   
4. Support: The California District Attorneys Association submitted a support letter dated April 1, 2019, on the as-introduced version of the bill.
5. Opposition: None received.
   
6. Amendments:
   
   1. A technical amendment is recommended to add the words “about the delay” on page 11, line 17, at the end of the sentence.
      
7. Outstanding Amendment Request: SIFMA appreciates the amendments taken by the author on April 1^st but continues to seek three additional amendments before the organization will support the bill. Because those amendments may generate concerns among certain interested parties, these amendments are not recommended at this time. They are included here for transparency purposes only.
   
   First, SIFMA would like to allow local adult protective service agencies, local law enforcement agencies, or DBO to delay a transaction or disbursement beyond the current maximum of 25 business days. SIFMA reasons that many situations will take longer than 25 business days to resolve, and, at present, the only entity authorized by this bill to extend a delay beyond 25 business days is a court.
   
   Second, SIFMA would like to expand the authority of broker-dealers and investment advisors to notify third parties about reports of suspected elder and dependent adult financial abuse. In addition to allowing broker-dealers and investment advisors to notify a trusted contact person previously identified by the elder or dependent adult for that purpose, SIFMA would like to allow securities professionals to notify “any other party permitted under law, rule, regulation or by customer agreement.” The organization would also like to allow notification of any third party who “is reasonably associated with” the elder or dependent adult.
   
8. Prior and Related Legislation:
   
   1. SB 1018 (Simitian), Chapter 140, Statutes of 2005, enacted the original Financial Elder Abuse Reporting Act of 2005, applicable to employees and officers of banks and credit unions, effective from January 1, 2007 through December 31, 2012.
      
   2. SB 33 (Simitian), Chapter 372, Statutes of 2011, deleted the sunset date on the Financial Elder Abuse Reporting Act of 2005.
      
   3. AB 1525 (Allen and Alejo), Chapter 632, Statutes of 2012 required money transmission licensees to provide each of their agents with training materials on recognizing elder or dependent adult financial abuse, and on the appropriate response to suspected elder or dependent adult financial abuse in a transaction. An earlier version of this bill would have made officers and employees of money transmission licensees mandated reporters, but that provision was amended out and replaced by the version of the bill that was chaptered.
      
   4. AB 611 (Dababneh), Chapter 408, Statutes of 2017 authorized a mandated reporter who is a bank or credit union officer or employee to refuse to honor a power of attorney, if that mandated reporter makes a report that the elder or dependent adult may be subject to financial abuse, as specified.
      
   5. AB 797 (Grayson) makes officers and employees of businesses licensed under the Money Transmission Act mandated reporters of elder and dependent adult financial abuse. Pending in the Assembly Aging and Long-Term Care Committee.

LIST OF REGISTERED SUPPORT/OPPOSITION

Support

California District Attorneys Association

Opposition

None received

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