Financial Exploitation Prevention Act of 2025
- Sponsor
- Sen. Hagerty, Bill [R-TN]
- Committees
- Banking, Housing, and Urban Affairs Committee (primary)
- Last action
- Sep 17, 2025
Bottom line
The bill provides a voluntary framework for investment companies to pause suspicious redemptions and contact trusted individuals to protect vulnerable adults from financial exploitation.
What it actually does
This bill amends the Investment Company Act of 1940 to allow registered open-end investment companies and their transfer agents to temporarily delay the redemption of securities for up to 15 business days (with potential extensions) if they reasonably believe a "specified adult" security holder is subject to financial exploitation. It also requires these entities, if they elect to comply, to request and retain contact information for a trusted adult for non-institutional direct at-fund accounts, and to disclose the circumstances under which this contact may occur. Additionally, it mandates an SEC report on further recommendations to address financial exploitation.
Proponents argue
Supporters argue this bill provides a crucial tool for financial institutions to intervene and protect elderly and vulnerable investors from financial exploitation, which is a growing problem. It offers a temporary safeguard, allowing time to investigate suspicious activity and involve trusted contacts or authorities, without unduly restricting legitimate access to funds. The voluntary nature allows institutions to adopt these protections when ready, ensuring effective implementation.
Opponents contend
Critics might express concerns about potential delays in legitimate access to funds, arguing that while the intent is good, the mechanism could inadvertently harm individuals needing urgent access to their investments. There could also be privacy concerns regarding the sharing of contact information, even with consent, and the subjective nature of determining a "reasonable belief" of exploitation or impairment.
The bill is concise and its core provisions are understandable, making it accessible for an informed reader to evaluate within a reasonable timeframe.
Section 2(a), adding Section 22(h)(1) to the Investment Company Act of 1940.
Election to Comply with New Requirements
This provision makes the new requirements for collecting trusted contact information and postponing redemptions optional for registered open-end investment companies and their transfer agents. They must notify the Securities and Exchange Commission (SEC) if they choose to comply with these new rules.
Supporters argue
Supporters argue that making the program voluntary allows companies to assess their capacity and client base, ensuring a smoother implementation for those ready to adopt these protections. It provides flexibility while still offering a valuable tool.
Critics contend
Critics might argue that making it optional could lead to uneven protection across the industry, potentially leaving some vulnerable investors unprotected if their financial institution chooses not to participate.
Tradeoffs
Balances industry flexibility and administrative burden against universal protection for vulnerable adults.
Section 2(a), adding Section 22(h)(2) to the Investment Company Act of 1940.
Collection of Trusted Contact Information
For non-institutional direct at-fund accounts, companies and transfer agents must request and retain the name and contact information of at least one adult who can be contacted about the account. They must also inform the customer in writing about the circumstances under which this contact might occur, such as suspected financial exploitation, to confirm contact/health status, or to identify a legal guardian.
Section 2(a), adding Section 22(i)(1) and (2) to the Investment Company Act of 1940.
Postponement of Redemption for Suspected Exploitation
This provision allows investment companies or their agents to delay the payment of a redemption request for more than seven days if they reasonably believe the request is from a "specified adult" and financial exploitation has occurred, is occurring, or has been attempted. The initial delay can be up to 15 business days, extendable by another 10 business days if exploitation is still reasonably believed, with notification to trusted contacts (unless the contact is suspected of exploitation). Government agencies or courts can also extend the period.
Section 2(a), adding Section 22(i)(2)(E), (F), and (G) to the Investment Company Act of 1940.
Internal Procedures, Disclosure, and Record Retention
Companies and transfer agents must establish internal procedures for identifying and reporting exploitation, determining whether to release or reinvest delayed funds, and identifying employees authorized to initiate holds. They must also disclose the possibility of redemption postponement in prospectuses and retain detailed records of all postponements, findings of exploitation, notifications, and internal review results, making these records available to the SEC.
Section 2(a), adding Section 22(i)(3) to the Investment Company Act of 1940.
Definition of "Specified Adult"
This provision defines a "specified adult" as an individual who is either 65 years of age or older, OR is 18 years of age or older and whom the company or transfer agent reasonably believes has a mental or physical impairment rendering them unable to protect their own interests.
Section 2(b).
SEC Recommendations Report
Within one year of the bill's enactment, the Securities and Exchange Commission (SEC), in consultation with various other financial regulatory bodies (including the CFTC, CFPB, FINRA, Federal Reserve, OCC, and FDIC), must submit a report to Congress. This report will include recommendations for further regulatory and legislative changes needed to address the financial exploitation of specified adults.
The entire protective framework established by the bill, including the collection of trusted contact information and the ability to postpone redemptions, is voluntary for registered open-end investment companies and their transfer agents. They must elect to comply by notifying the SEC.
Section 2(a), adding Section 22(h)(1).
Why it matters:This is standard legislative practice to define the scope of applicability upfront. It allows for a phased or flexible adoption by regulated entities, potentially easing industry concerns about immediate, universal mandates.
Case for: Allows financial institutions to opt-in when they are prepared to implement the necessary systems and training, ensuring a smoother rollout and potentially higher compliance quality among participants. It provides industry flexibility.
Case against: Could lead to a patchwork of protections, where some vulnerable adults are covered by these safeguards while others are not, depending on their chosen financial institution, potentially leaving many at risk.
Estimated impact: Determines the actual reach and effectiveness of the bill's protective measures across the investment company landscape, as only opting-in firms will implement them.
The bill explicitly defines the specific conditions under which a financial institution may contact an individual specified as a trusted contact. These conditions include addressing possible financial exploitation, confirming contact information or health status, or identifying a legal guardian, executor, trustee, or power of attorney holder.
Section 2(a), adding Section 22(h)(2)(C).
Why it matters:This level of detail is necessary for legal precision and to define the boundaries of the institution's authority, protecting both the customer's privacy and the institution from overreach. It is a standard practice in legislative drafting to specify permissible actions.
Case for: Provides clear guidelines for when a financial institution can contact a trusted individual, protecting both the customer's privacy and the institution from overreach, while still allowing for critical intervention in specific, defined circumstances.
Case against: Some might argue the conditions are too narrow, potentially limiting the institution's ability to act in certain exploitation scenarios not explicitly listed, or too broad, allowing for unnecessary contact in situations not directly related to exploitation.
Estimated impact: Shapes the practical application of the trusted contact mechanism, influencing how often and for what reasons third parties are involved in an account holder's financial affairs.
An exception to the requirement to notify trusted contacts about an extended redemption postponement exists if the financial institution reasonably believes that the individual required to be notified is, has been, or will subject the security holder to financial exploitation.
Section 2(a), adding Section 22(i)(2)(D)(i).
Why it matters:This is a crucial safeguard to prevent inadvertently alerting the perpetrator of exploitation, which would undermine the entire purpose of the delay and trusted contact system. Such protective exceptions are often placed within the procedural details of a bill.
Case for: Essential for the effectiveness of the anti-exploitation measures, as notifying a suspected exploiter would compromise the investigation and potentially endanger the victim or their assets. It is a common-sense protection.
Case against: No significant case against this specific exception, as it is a logical and necessary protection to prevent alerting perpetrators and ensure the efficacy of the anti-exploitation measures.
Estimated impact: Crucial for the practical success of interventions, ensuring that perpetrators are not inadvertently warned, thereby increasing the likelihood of preventing or mitigating financial losses for victims.