Scam Corner: Protecting a Loved One From Scams

Two of the main ways that scammers are successful involves creating a sense of urgency as well as convincing the victim that bad things will happen if instructions aren’t followed. This activates the fear and fight/flight response which disables rational thinking. I’ve read of bank investigation scams in which the scammer was able to get a person who wouldn’t think of doing so, to lie to friends, family and bank officials in order to bypass scam safeguards. The key to not becoming a victim is to stop, take a pause, and notice what is happening. That moves the brain from the fight-or-flight to the rational thinking center.

There is a concept with computer software called “friction by design.” To quote Carl Barenbrug, “Friction, when designed deliberately, serves a different purpose. It introduces a pause. A moment of awareness. A small resistance that asks the user to pay attention to what they’re doing, rather than simply passing through an interface on autopilot. Friction exists to make us notice what we’re doing.”

If this concept sounds a lot like what is needed to allow a pause from what a scammer is saying to do, this can be a good friction which will reduce the success of scams.

How can we introduce friction by design into finances?

There are a number of tools, using the existing financial systems, that allow the introduction of good friction into financial transactions. By introducing one or more of these tools, you can help a loved one avoid becoming a victim.

Be aware that most of these tools first involve a conversation and agreement with the loved one to allow use of these tools. That conversation needs to be from a perspective of love and caring because it will mean changes in how the person typically manages their own money. The purpose is not to create a power struggle or to strip away dignity. Instead, it is to assist with keeping their finances safe.

A Financial Power of Attorney is Required First

It is important to have the authority of a financial power-of-attorney (POA) when having these conversations. If a financial POA exists, this means that another person has already been given permission to assist with the loved one’s finances. (If one does not exist, this is a good time for the person to identify a trusted person to act in that role and formalize it with a legal POA document.)

Here are four ways to implement friction by design that will help a POA protect the loved one’s assets while still giving that person autonomy in their financial life.

Create a Mandatory Time-delay to Allow a Cooling-off Period

This adds in some friction in the form of a time-delay so that demands for immediate payment via irreversible means such as wire transfers or pre-paid cards cannot be done quickly.

For assets held in a brokerage firm such as IRAs and other retirement savings, contact the brokerage to see if you as a POA can set up standing transfer rules. These can force any transaction above a chosen threshold to trigger a mandatory 24- to 48-hour administrative hold or to require a verbal confirmation from the POA to allow the transaction to go through.

Another delay process is to use a savings bank account for the majority of the liquid assets such as a high-yield savings account. Transfers from the savings account to checking can be done via ACH but they will take 1-2 business days, allowing time for any urgency to cool off.

Strategic Vault and Wallet Separation

This tool adds friction by creating even more separation between day-to-day living funds and core wealth by using completely separate bank accounts. Rather than the savings and checking being at the same institution, the two accounts are held at two different banks. One account holds most of the funds and a monthly automated transfer is set up to the second account which is used for monthly living expenses.

The credit card equivalent to this is a prepaid card, where regular auto-transfers are set up to reload the card with expected monthly funds. The loved one carries the pre-paid card rather than a credit card and uses it for everyday items.

This friction may still allow a loved one to be scammed. However, this provides immediate access to much smaller amounts of money and losses can be limited.

Dual Control of Accounts

This method of friction by design takes advantage of the POA as a second pair of eyes and a rational brain. Note that this might require a different type of bank account for checking since personal accounts may not have the features needed.

To implement this, work with your bank for their options or open a business account as needed and then configure it to require two approvals for any transaction over an agreed-upon amount. The loved one will be able to initiate the transactions, but the POA will also need to log into the account and approve the transaction.

To provide dual control with a credit card, check with local credit unions or regional banks who issue credit cards. It may be possible to set up bank app credit card controls over how the card is used. The POA can manage online access for the loved one to allow the card to be used for normal grocery, retail, and medical spending but not allow transactions to go through for scammer payment choices such as gift cards, wire transfers, cash advance ATM withdrawals, or crypto purchase.

View-Only Notifications

A less-intrusive method of adding friction by design is to set up transaction notifications to the POA. Many banks and credit card issuers allow you to set up alerts to notify you if a transaction over a threshold is made on the account or card.

By setting up the phone/email of the POA as the destination for notifications, the loved one still has full control over their finances, but transaction information is sent to the POA who can then be quickly alerted to unusual transactions. Many online accounts at financial institutions will allow setting up a second email or phone number for alert messages, so it is sometimes even possible to have the alerts be sent to both the card/account holder as well as the second person.

For many brokerages, it is possible to set up a trusted contact person and possibly also read-only access to accounts to allow monitoring without the ability to modify the account.

This method, in combination with other friction by design methods, can both alert someone and reduce the likelihood of a larger loss of funds.

When it comes to protecting loved ones, having a POA in place and setting up some tools to allow the POA to help add some friction to the financial transactions can result in scammers being less successful. With these tools, even if scammers are successful, the financial impact can be limited.