BILL ANALYSIS Ó
AB 212
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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 :
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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).)
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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
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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
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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.
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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
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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