Fraudsters are masters at manipulating their victims—especially seniors. They can persuade someone to give them thousands of dollars for some bogus reason: whether it's to claim a sweepstakes prize, help a loved-one in distress or to strike it rich with a "guaranteed" investment opportunity.
An employee at the bank or credit union might suspect something is wrong when a customer makes an unusually large withdrawal, but they may not say anything because of privacy concerns.
"Privacy protections are important to everyone, but those privacy protections provide clear exceptions in the case of addressing fraud or other illegal misconduct," said Martin Gruenberg, chairman of the Federal Deposit Insurance Corp.
Eight federal regulatory agencies issued a joint document on Tuesday that clarifies privacy rights and responsibilities for employees of financial institutions. They provided this guidance because so many companies have expressed concern that the Gramm-Leach-Bliley Act puts privacy ahead of fraud prevention.
(Read more: Obamacare is coming, and so are the con artists)
The law, also known as the Financial Services Modernization Act of 1999, requires financial institutions to notify customers and give them the opportunity to opt out before providing nonpublic personal information to a third party. (That's why you get those privacy notices every year from you bank, credit union and investment firm.)
Richard Cordray, director of the Consumer Financial Protection Bureau, said "reporting suspected elder financial abuse to the appropriate authorities is typically the right thing to do and generally will not violate the Gramm-Leach-Bliley Act."
The new guidance also makes it clear that financial institutions can disclose nonpublic personal information to law enforcement agencies investigating suspected financial abuse of older adults.
A serious problem that is likely to get worse
No one knows for sure how much elderly Americans lose each year to financial fraud. A study done by MetLife estimated the loss at more than $2.9 billion in 2010.