Vermont Considers Letting Banks Hit Pause on Suspicious Transactions
As financial scams grow more sophisticated, lawmakers are weighing a new tool that would give banks and credit unions the authority to temporarily freeze questionable transfers
The Problem Vermont Is Trying to Solve
Financial exploitation has become what some experts call the “crime of the 21st century.” According to the FBI’s Internet Crime Complaint Center, victims over age 60 alone lost $3.4 billion to fraud in 2023—an 11% increase from the previous year.
The Vermont Department of Financial Regulation has identified a frustrating pattern: by the time a customer realizes they’ve been scammed, the money is usually gone. The agency’s January 2026 report notes that the ability to intervene at the moment of a suspicious transaction could be critical to protecting Vermonters’ savings.
What the Proposed Law Would Do
On February 13, 2026, the Vermont House Committee on Commerce and Economic Development reviewed draft legislation that would give banks and credit unions discretionary authority to temporarily pause or refuse transactions when they reasonably believe a customer is being exploited.
The proposed changes to Title 8, Chapter 200 would allow financial institutions to delay or refuse a transaction, prevent changes to account ownership or beneficiary designations, and decline to honor instructions from someone acting under a power of attorney if exploitation is suspected.
How Long Could a Transaction Be Held?
The draft legislation sets specific time limits. An initial hold would expire at the earlier of 15 business days, a determination that exploitation is unlikely, or a court order directing the release of funds. If the bank still has reasonable concern that exploitation may continue, it could extend the hold for one additional 15-day period.
Banks Would Have Discretion, Not a Mandate
A key feature of the Vermont proposal is that using these powers would be voluntary. Chris Delia of the Vermont Bankers Association told the committee that the 15-day window should be viewed as a “cooling-off period” rather than a mandatory seizure of funds.
The draft also includes legal protections—sometimes called “safe harbors”—that would shield financial institutions and their employees from civil, criminal, or administrative liability when they act in good faith to delay a suspicious transaction.
Who Would Be Protected
Unlike some states that limit similar protections to seniors or vulnerable adults, the Vermont DFR has recommended that these transaction holds apply to all customers regardless of age. The department argues that fraud can victimize anyone and that universal application avoids potential age-related discrimination while casting the broadest possible protective net.
How Vermont Compares to Other States
Vermont isn’t alone in considering this approach. Approximately half of U.S. states have adopted similar “report and hold” legislation, often modeled after guidance from the North American Securities Administrators Association.
A 2024 survey by the American Bankers Association Foundation of 158 banks provides some evidence of how these laws work in practice. More than half of banks in states with hold laws have used the tool, and 43% reported the laws were useful in preventing exploitation. Notably, 52.4% of banks surveyed said they believe longer hold periods are necessary—a finding that appears to support Vermont’s decision to include the 15-day extension option.
Lessons from California’s Veto
California’s experience offers a cautionary example. Governor Gavin Newsom vetoed a similar bill in 2024 that would have required financial institutions to delay transactions over $5,000 for at least three days when fraud was suspected. His concerns centered on mandatory holds potentially undermining seniors’ financial independence and blocking legitimate expenses.
By keeping its proposal discretionary, Vermont appears to be seeking a middle path—providing banks with a protective tool and immunity rather than creating requirements that could lead to over-blocking legitimate transactions.
The Federal Question
Committee members raised questions about whether the state law would effectively cover federally chartered institutions like national banks and federal credit unions. Federal law generally preempts state regulations that “prevent or significantly interfere” with national bank operations.
Because Vermont’s proposal is discretionary rather than mandatory, legal observers suggest it may be less vulnerable to preemption challenges. The law would provide an optional tool and immunity rather than requiring banks to change their fundamental operations.
Concerns About Notifying Third Parties
The draft allows financial institutions to notify “associated third parties”—such as spouses, adult children, or fiduciaries—when exploitation is suspected. This provision aims to bring in a trusted person who can help the customer recognize a scam.
Committee members raised valid concerns about this approach. In cases of domestic or intra-family exploitation, the person listed as an associated third party might actually be the perpetrator. The draft addresses this by allowing banks to withhold notice if they suspect the third party is involved.
The DFR has recommended a safer alternative: using a specifically designated “trusted contact” that the customer identifies when opening an account, rather than notifying generic associated third parties.
What the Law Wouldn’t Cover
The current draft focuses on traditional banks and credit unions. Peer-to-peer payment apps like Venmo, CashApp, and PayPal are not included. The DFR’s report acknowledges that while fraud is increasingly moving toward these “frictionless” digital platforms, pausing transactions in those environments is “challenging to implement universally.”
The department said it is still exploring whether other types of financial institutions should be subject to similar requirements in the future.
Connection to Coerced Debt Protections
The committee is simultaneously considering House Bill 385, which addresses “coerced debt”—debt fraudulently incurred in a victim’s name through domestic abuse, human trafficking, or undue influence. That bill would require creditors to cease collection efforts and remove negative credit reporting within 10 business days of receiving documentation of coercion.
The two proposals work together: the transaction hold law aims to prevent the loss of existing funds, while H.385 aims to address debt that’s already been fraudulently created.
What Happens Next
The House Committee on Commerce and Economic Development will continue reviewing the draft legislation. Key issues still being worked through include how to define and train bank employees on the “reasonable belief” standard, how to safely implement third-party notifications, and ensuring the law provides clear protections that encourage participation by federally chartered banks without triggering preemption challenges.
Vermont residents with questions or concerns about the proposed legislation can contact their representatives or submit public comment through the Vermont Legislature’s website.