A survey the American Bankers Association released Monday revealed how U.S. banks operate under and view so-called hold laws, which allow banks to delay disbursement or hold transactions when they suspect financial exploitation of an older or vulnerable person.
The survey found that, among banks that operate in states with hold laws, half (50%) actually use the law to protect their customers, often less than once a month. Among banks that don't operate under a hold law, a vast majority (86%) said they would find it beneficial to have one in place.
The American Bankers Association surveyed 158 banks for
Most banks surveyed (53.2%) had less than $1 billion in assets, and a large majority (63%) said they serve a local market rather than a state, a region, the whole nation or the online market.
Overwhelmingly, a vast majority (94%) of banks in the survey — regardless of whether they operate in a state with a hold law — said they reported instances of suspected elder financial exploitation to adult protective services. A similar number (92%) reported suspected instances to law enforcement.
Reporting suspected financial abuse is permitted by federal regulators, and some states require banks that have reason to suspect such abuse to report it to local law enforcement or adult protective services.
However, while reporting is protected and encouraged nationwide, the same does not go for placing holds on financial transactions that the bank suspects to be exploitation.
In states like California, where no hold law or liability protection exists, there are risks involved in attempting to intervene, according to Laurel Sykes, executive vice president and chief risk officer at American Riviera Bank, headquartered in Santa Barbara, California.
"Right now, if I wanted to freeze funds for suspected fraud, I run the risk of liability for wrongful dishonoring of checks written on the account," Sykes said in the report.
State hold laws generally relate to situations where a would-be victim is transferring or withdrawing a large sum of money out of their account, often through a cash withdrawal or a wire transfer.
Per federal regulations, banks typically have more latitude to hold such transactions compared to when a customer, for example, tries to cash a check. So, while these state laws do not contradict federal regulations, not all state laws are written the same way, creating compliance burdens for banks that operate in multiple states with such laws.
Also, customer reactions to holds have not been universally positive. Among the 42 banks that reported using the hold law, 45% said they have had negative reactions from customers, and only 17% said they had positive reactions. In a small number of cases (2%), banks reported that the customer challenged the hold in court.
"Customers react negatively when transactions are held, and they react just as negatively when they've lost money and feel the bank should have done more," reads the American Bankers Association's report.
One respondent said in summary, "We're damned if we do and damned if we don't."
However, these laws have tremendous upside for potential victims. In one anecdote included in the ABA's report on the survey results, an employee at First Seacoast Bank said New Hampshire's hold law helped the bank save a client from losing $30,000 and has been instrumental to preventing other losses.
There were 42 banks in the survey that reported using the hold law that their state has in place. Among these 42, more than half (52%) said they wanted the ability to hold transactions for a longer period of time than what the law allows. Nearly half (48%) said they would prefer to have 30 days or longer.
Jennell Huff, community outreach coordinator and relationship manager at Bank of the Rockies in Montana, said in the survey that while the relatively long 15-day hold allowed by state law is a significant amount of time to restrict access to funds, "these investigations can take a significant amount of time."
