Bankers present 'transaction hold' draft to curb fraud; committee asks regulator to lead study

The Vermont House Committee on Commerce & Economic Development on Feb. 18 heard a detailed proposal from Chris Stelio, president of the Vermont Bankers Association, to give depository institutions discretionary authority to delay or refuse certain withdrawals they reasonably suspect are the result of financial exploitation or fraud.

Stelio described model language used in other states and a version he submitted to committee staff. He said the tool is narrowly focused on individual transactions rather than blanket account holds and could operate as a "cooling off period" after a teller or other bank employee identifies an unusual or out-of-pattern request. "You could consider it a cooling off period," Stelio said, describing a 30-day hold period in the draft language and procedures to contact a designated trusted third party when appropriate.

The draft would include definitions (for example, "eligible adult," "depository institution" and "associated third party"), a list of permissible actions an institution could take after a suspicious transaction is identified, and immunity provisions for institutions that act in good faith. Stelio emphasized the measure is discretionary — several provisions use "may" — and said bank members favor a careful, limited approach because the authority touches account-holder rights.

Committee members raised several practical concerns: how the mechanism would work for electronic transfers and gift-card purchases, how it would interact with federal reporting requirements (including the Bank Secrecy Act and suspicious-activity reports), and whether age‑based or vulnerability-based eligibility should be included. Stelio gave an example of a 39‑year‑old who was the victim of an online romance scam to underscore that people of many ages can be targeted.

Department of Financial Regulation staff told the committee they support the concept and would be willing to lead a stakeholder process over the summer and fall to refine statutory language, involving groups such as AARP, legal-aid providers, Adult Protective Services, credit unions and investment advisers. Committee members instructed staff to add a study directive into the bill text asking the department to convene stakeholders and return recommended language.

The committee did not put the proposal into law during the hearing. Members said they prefer more time for review and broader stakeholder input before any statutory change that would allow institutions to delay access to account funds.

Ending: Committee members and banking representatives agreed to continue developing language; the Department of Financial Regulation agreed to convene stakeholders and report back with draft statutory language for the committee’s consideration.