We have an elderly customer who we think is being scammed. We see repeated charges on his checking account from a computer repair company (these are remotely created checks rather than physical checks). Each new charge is usually around $600. We have tried to explain to the customer that we think he is the victim of a scam, but the charges keep appearing. We know about our reporting obligations under state and federal law regarding suspected elder financial abuse, but can we also stop payment on these charges?

Your bank may stop payments on these charges provided your customer’s account agreement grants you this authority under these circumstances. Demand deposit account (DDA) agreements typically include a provision permitting the bank to decline a transaction if the bank suspects fraud or otherwise finds it necessary to protect the customer or the bank. Such a provision would supersede the Uniform Commercial Code (UCC) rule that a payor bank is liable for wrongfully dishonoring an otherwise properly payable item.

If your DDA agreement does not include this type of provision, you still may stop payments on these charges since fraud is suspected, but your bank would risk liability for wrongfully dishonoring these items, particularly if your customer objects or no fraudulent activity is found. In such case, we strongly recommend amending your DDA agreements to expressly allow you to decline transactions when fraud is suspected going forward.

You are correct that if your bank suspects financial exploitation of an elderly customer, Illinois law encourages you to report the activity to the Illinois Department of Aging, and federal law may require you to file a suspicious activity report (SAR) if certain conditions are met. To encourage reporting, both the Illinois and federal privacy laws provide safe harbors for banks when reporting suspected elder financial exploitation.

For resources related to our guidance, please see:

Uniform Commercial Code, 810 ILCS 5/1-302(a) (“Except as otherwise provided in subsection (b) or elsewhere in the Uniform Commercial Code, the effect of provisions of the Uniform Commercial Code may be varied by agreement.”)
Uniform Commercial Code, 810 ILCS 5/4-402(b) (“A payor bank is liable to its customer for damages proximately caused by the wrongful dishonor of an item. Liability is limited to actual damages proved and may include damages for an arrest or prosecution of the customer or other consequential damages. Whether any consequential damages are proximately caused by the wrongful dishonor is a question of fact to be determined in each case.”)
Adult Protective Services Act, 320 ILCS 20/4(a) (“Any person who suspects the abuse, neglect, financial exploitation, or self-neglect of an eligible adult may report this suspicion to an agency designated to receive such reports under this Act or to the Department.”)
FinCEN Rules, 31 CFR 1020.320(a)(2) (Requires banks to file SARs when a transaction involves or aggregates at least $5,000 in funds or other assets, and the bank knows, suspects, or has reason to suspect that “(i) The transaction involves funds derived from illegal activities . . . (ii) The transaction is designed to evade any requirements of this chapter or of any other regulations promulgated under the Bank Secrecy Act; or (iii) The transaction has no business or apparent lawful purpose or is not the sort in which the particular customer would normally be expected to engage, and the bank knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction.”)
Regulation P, 12 CFR 1016.15 (Lists exceptions to opt-out requirements, including “[t]o comply with Federal, state, or local laws, rules and other applicable legal requirements”)
FRB Suspicious Activity Reports Rules, 12 CFR 208.62(k) (Creates a safe harbor from liability for the disclosure of “reports of suspected or known criminal violations and suspicious activities to law enforcement and financial institution supervisory authorities, including supporting documentation, regardless of whether such reports are filed pursuant to this section or are filed on a voluntary basis.”)
Illinois Banking Act, 205 ILCS 5/48.1(b)(16) (Creates exemption from privacy requirements for furnishing information to law enforcement authorities, the Illinois Department on Aging and its regional administrative and provider agencies, the Department of Human Services Office of Inspector General, or public guardians “if there is suspicion by the bank that a customer who is an elderly or disabled person has been or may become the victim of financial exploitation.”)