BILL ANALYSIS Ó AB 212 Page 1 Date of Hearing: April 2, 2013 ASSEMBLY COMMITTEE ON JUDICIARY Bob Wieckowski, Chair AB 212 (Lowenthal) - As Introduced: January 31, 2013 SUBJECT : UNCLAIMED PROPERTY: AGGREGATE REPORTING KEY ISSUE : SHOULD HOLDERS OF UNCLAIMED PROPERTY VALUED AT LESS THAN $50 BE REQUIRED TO SEND DUE DILIGENCE NOTIFICATIONS TO OWNERS AND, WHEN OWNER INFORMATION IS KNOWN, TO REPORT SUCH INFORMATION TO THE STATE CONTROLLER? FISCAL EFFECT : As currently in print this bill is keyed fiscal. SYNOPSIS This bill, sponsored by the State Controller, seeks to require holders of unclaimed property valued at less than $50 to send due diligence notifications to owners, and to report owner information, if known, to the State Controller. Under existing law, holders are not required to send due diligence notifications for unclaimed property valued less than $50, and holders may add many small properties together and report a single amount to the Controller without including information about the individual owners and properties, even if such information is known to the holders-a procedure known as aggregate reporting. According to the author and sponsor, the task of reuniting these properties with their rightful owners is nearly impossible after they have been reported in aggregate, and thus does not appear to further one of the main objectives of the Unclaimed Property Law, which is to restore property to its rightful owner. Consequently, this bill seeks to eliminate aggregate reporting of unclaimed property under $50 in value, permitting it only in cases where the name of the owner is unknown and there is no last known address in the holder's records for the property. This bill is opposed by banks and credit unions, who contend that the additional due diligence notifications will result in significant new administrative and fiscal burdens. SUMMARY : Requires holders of unclaimed property valued at less than $50 to send due diligence notifications to owners and to report owner information, when known, to the State Controller. Specifically, this bill : AB 212 Page 2 1)Removes two statutory exemptions that currently exempt holders of property valued at less than $50 from the general requirement to send due diligence notices to owners notifying them that their property may be transferred to the state unless they take certain actions. 2)Prohibits aggregate reporting of unclaimed property valued under $50 unless the name of the owner is unknown and there is no last known address in the holder's records. 3)Clarifies that the holder may impose a service charge of up to $2 to send the notification, but only if the unclaimed property has a value greater than $2. EXISTING LAW, the Unclaimed Property Law, among other things : 1)Provides that certain types of savings or deposit accounts made with a banking or financial organization, as specified, escheat to the state when the owner, for more than three years after the funds become payable or distributable, has not done any of the following: a) Increased or decreased the amount of the deposit, cashed an interest check, or presented the passbook or other similar evidence of the deposit for the crediting of interest; b) Corresponded electronically or in writing with the banking organization concerning the deposit; or c) Otherwise indicated an interest in the deposit as evidenced by a memorandum or other record on file with the banking organization. (Code of Civil Procedure Section 1513(a) (1) and (2). Unless otherwise stated, all further statutory references are to that code.) 2)Requires the due-diligence notice sent by property holders to owners to describe the escheat process, state the need to file a claim for the return of the property, and provide other specified information about the account or property. Further requires the face of the notice to contain a heading stating: "THE STATE OF CALIFORNIA REQUIRES US TO NOTIFY YOU THAT YOUR UNCLAIMED PROPERTY MAY BE TRANSFERRED TO THE STATE IF YOU DO NOT CONTACT US." (Sections 1513(b) and 1520(b).) AB 212 Page 3 3)Expressly provides that the above notice need not be provided to owners for deposits, accounts, shares, or other property interests valued at less than $50. (Sections 1513(c) and 1520(b).) 4)Provides that every person holding funds or other property escheated to the state shall report annually to the Controller specified information identifying or describing the escheated property and its owner, except that items of value under $50 may be reported in aggregate without the name, account number, or other information, if any, identifying the property or its owner. (Section 1530(b).) COMMENTS : Under existing law, holders of unclaimed property are generally required to: (1) send due diligence notices to owners identifying the property and notifying them that the property may escheat to the state unless certain action is taken; and (2) report to the State Controller the owner's name, address, and other information appearing in the holder's records, if any. If the unclaimed property is valued at less than $50, however, the holder is not required to provide any due diligence notice to the owner, nor to report identifying information about the property and its owner to the Controller--even if such information is contained in the holder's own records of the property. Instead, many small properties valued at under $50 may be combined together into a single amount without identifying information, and reported in aggregate to the Controller as a single line item. This bill, sponsored by the State Controller, would eliminate these exemptions for property valued at less than $50 and extend existing notification and reporting requirements to all unclaimed property equally. In other words this bill would eliminate aggregate reporting for small properties and would for the first time require holders of unclaimed property valued at less than $50 to send due diligence notifications to owners and to report owner information, if known, to the State Controller. According to the author, this bill is needed to address certain problematic aspects associated with the aggregate reporting. The author states: Aggregate reporting presents many challenges for the AB 212 Page 4 Unclaimed Property Program in achieving its mission to reunite lost and abandoned property with the rightful owner. Since current statute does not require holders to report owner information on accounts valued at less than $50, aggregate properties are not itemized within the unclaimed property database or displayed on the website for owners to search the SCO public website and claim their properties. If by chance, an owner does learn that they have an aggregate property; many complexities ensue for both holders and the SCO in researching these properties and proving entitlement when a claim is made. Oftentimes when a customer calls to make an inquiry regarding an aggregate property, the State will refer them back to the holder and conversely, the holder will refer them back to the State. This back and forth creates a great deal of frustration for the property owner and inspires very little public confidence of the Unclaimed Property Program or the holder. Background of the UPL: The Unclaimed Property Law, enacted in 1958, establishes procedures for the escheat of unclaimed personal property. Property escheated to the state means the state has custody of the property in perpetuity, until the owner claims the property. Under the UPL, there are three significant parties: the owner, the holder, and the state. The "owner" is the person to whom the property actually belongs. The "holder" is the person or entity who has possession of the property. The holder might be a bank or other money depositary (e.g., holds deposits of owner's money, holds property in a safe deposit box), or a business that has issued a check to an individual or other business, or a life insurance or annuity. Holders of unclaimed property have no interest in the unclaimed property. (Bank of America v. Cory (1985) 164 Cal.App.3d 66, 74.) A holder is simply a trustee of the property while the property is in the possession of the holder. However, while the property is in the custody of the holder, the holder generally uses the funds or the property as an asset. The UPL has dual objectives: (1) to protect unknown owners by locating them and restoring their property to them; and (2) to give the state, rather than the holders of unclaimed property, the benefit of its retention, since experience shows that most abandoned property will never be claimed. (State v. Pacific Far East Line, Inc. (1962) 261 Cal.App.2d 609, 611; Douglas Aircraft AB 212 Page 5 Co. v. Cranston (1962) 58 Cal.2d 462, 463.) The state, through the Controller, acts as the protector of the rights of the true owner. (Bank of America v. Cory, supra, at 74.) The UPL establishes procedures to be followed when property goes unclaimed, generally for a period of three years, and escheats to the state. Under existing law, the holder must annually report on unclaimed property and turn the property over to the Controller. (Sections 1530 and 1532.) In turn, the Controller is required to mail a notice to each person who appears to be entitled to unclaimed property according to the report filed by a holder, in addition to the requirement of publication of unclaimed property owners in a newspaper of general circulation. (Sections 1531 and 1531.5.) A person with an interest in escheated property may file a claim to recover the property from the state. (Sections 1540 to 1542.) The Controller maintains a web site ( http://www.sco.ca.gov ) where members of the public may search a database to discover if the state is holding any of their property, and may submit claims to recover the funds or property. According to data provided by the State Controller, his office receives approximately $600 million annually as escheated property. Existing law requires that all but $50,000 of these funds are transferred to the General Fund on a monthly basis. (Section 1564.) The Controller reports maintaining current accounts of approximately $6.4 billion for monies that have been remitted to the Controller and transferred to the General Fund. As of FY 2011-12, there were approximately 21.5 million owner accounts (individuals and organizations) in the Controller's database, and in that year a total of $240 million in cash was disbursed with an average payment of $837. (State Controller, "Unclaimed Property Division, Information Worksheet FY 2011-12".) Due diligence notification requirement for small properties. Existing law requires holders of property to send due diligence notices to property owners notifying them that their property may escheat to the state. The notice is intended to prompt the owner to take some action on the account that will make the owner's presence apparent to the holder, often by recovering the property or restoring communication between holder and owner, but in either case preventing escheat of the property to the state pursuant to the UPL. AB 212 Page 6 Existing law does not require holders to send due diligence letters with respect to property valued at less than $50. Under this bill, however, holders must send owner of small properties less than $50 due diligence letters for the first time. According to the author, this requirement will help more owners local and claim their property with fewer frustrations than they experience today. In addition, the author contends that this requirement will result in greater opportunities for the holder to once again establish a business relationship with the customer prior to escheat of the property, possibly resulting in new business activity with that customer. Aggregate reporting potentially hinders the UPL's objective of restoring property with owners. Despite the diligent efforts of both holders and the State Controller to notify owners of unclaimed property as required by law, if no owner is located the holder must nevertheless transfer the property to the state. In such cases, the holder must report specified information about the owner of each property to the Controller-unless the property is valued less than $50. Existing law expressly permits so-called "aggregate reporting" for items of value under $50, even when an owner's contact information, such as name, address, account number and social security number, is known to the holder. Aggregate reporting of unclaimed property occurs when many small properties are added together and reported as a single amount to the Controller without including information about the individual owners and properties that are being aggregated together. In 2011-12, the State Controller reports that over $12.8 million was transferred to the state in aggregate without any accompanying information that could identify the individual property owners, and that this figure totals approximately $68 million over the past five years. According to the Controller, the task of reuniting these properties with their rightful owners is nearly impossible after they have been reported in aggregate. Proponents contend that aggregate reporting may unnecessarily prevent some owners from being reunited with property under $50, even when identifying information is known to the holder, because that information is essentially disregarded and wasted once the property is reported in aggregate. Furthermore, this result does not appear to further one of the main objectives of the Unclaimed Property AB 212 Page 7 Law-to restore property to its rightful owner-and may in fact hinder it. Consequently, this bill seeks to eliminate aggregate reporting of unclaimed property under $50 in value, permitting it only in cases where the name of the owner is unknown and there is no last known address in the records of the holder. ARGUMENTS IN OPPOSITION : The California Credit Union League (CCUL) opposes the provisions of the bill requiring its member institutions and other holders to send due diligence notices to owners of properties valued under $50, whom currently are not required to be sent such notices. CCUL writes in opposition: "The additional due diligence notifications required under this bill would result in significant additional costs to our member credit unions. Our member credit unions are not comfortable with passing these additional costs on to their members. The lost revenue incurred by this additional burden would have ordinarily been returned to our members via lower interest rates, fees, and additional services." The California Bankers Association (CBA) objects to the bill on similar grounds, stating that the bill will result in significant administrative and fiscal burdens for its member institutions. CBA opposes the bill unless amended to remove the requirement for due diligence notifications for property under $50 and to delay operation of the bill until January 1, 2015 to allow time to comply with the aggregate reporting provisions. REGISTERED SUPPORT / OPPOSITION : Support State Controller's Office (sponsor) Opposition California Bankers Association California Credit Union League Analysis Prepared by : Anthony Lew / JUD. / (916) 319-2334