The Financial Exploitation Prevention Act of 2025 allows investment companies to postpone the redemption of securities from vulnerable adults (65+ or those with impairments) when financial exploitation is suspected, and requires them to collect contact information for a trusted contact person.
Ann Wagner
Representative
MO-2
The Financial Exploitation Prevention Act of 2025 amends the Investment Company Act of 1940 to protect senior investors from financial exploitation. It allows investment companies to request contact information for a trusted contact person, and to postpone the redemption of securities if financial exploitation of a "specified adult" (age 65+ or an adult believed to be impaired) is suspected. The postponement is limited to 15 business days, with a possible 10-business-day extension, and requires internal review, notification to the designated contact, and reporting to state regulators or courts. The SEC must submit a report to Congress with recommendations for regulatory and legislative changes needed to address the financial exploitation of security holders who are specified adults.
Financial Exploitation Act Allows Investment Firms to Delay Payouts Up to 25 Days for Vulnerable Adults
This bill, the Financial Exploitation Prevention Act of 2025, amends the Investment Company Act of 1940 to give investment companies and their transfer agents a new tool. Specifically, Section 2 allows them to temporarily postpone cashing out securities (like mutual fund shares) for certain customers if they reasonably suspect financial exploitation is happening. This applies to 'specified adults' – defined as anyone 65 or older, or any adult believed to have an impairment hindering their ability to protect their interests – who hold accounts directly with the fund, not through a broker.
Hitting Pause on Payouts
Here's the core change: if an investment firm flags a redemption request from a specified adult as potentially fraudulent or coercive, they can delay sending the money for up to 15 business days. If they still suspect foul play after an internal review, they can extend that hold for another 10 business days. During this hold period, the firm must investigate, document everything, notify a pre-designated emergency contact (unless that person is the suspected exploiter), and keep the funds safe in something like a demand deposit account. Think of it like a bank putting a temporary hold on a suspicious check, but for investment withdrawals. The idea is to create a window to intervene before an older person's savings disappear due to a scam.
The Emergency Contact Card
To make this work, the bill requires investment firms opting in to ask these direct-at-fund customers for contact information for at least one trusted adult. When opening an account or through other means, the firm needs to request this info and explain they might reach out to this person if they suspect financial exploitation, need to confirm the account holder's status, or identify a legal guardian. This designated contact becomes a potential point of intervention, unless the firm suspects that very contact person is involved in the exploitation.
Rules of the Road and Reporting Up
Firms choosing to use this power aren't just getting a free pass to delay payments. They need written procedures for identifying exploitation, deciding on delays, escalating issues internally, and documenting every step. They also have to tell investors upfront – in the fund's prospectus or similar documents – that redemptions could be delayed under these specific circumstances. Furthermore, the bill mandates the Securities and Exchange Commission (SEC) to consult with other financial regulators and report back to Congress within a year with recommendations on how to better combat the financial exploitation of vulnerable investors. This signals an ongoing focus on the problem, but the immediate power to delay rests with the investment firms themselves, balanced by internal procedures and documentation requirements.