BILL ANALYSIS Ó
AB 2258
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Date of Hearing: April 19, 2016
ASSEMBLY COMMITTEE ON JUDICIARY
Mark Stone, Chair
AB 2258
(Eggman) - As Amended March 16, 2016
PROPOSED CONSENT
SUBJECT: UNCLAIMED PROPERTY
KEY ISSUE: should it be clarified that account transactions
made through electronic fund transfers shall be considered
interactions between the account holder and the financial
institution for the purpose of determining whether there has
been sufficient activity on the account to avoid escheat of the
funds to the state?
SYNOPSIS
California law currently requires financial institutions to
notify the State Controller's Office (SCO) when there is no
"live" activity between an account owner and his or her account
for three years, and the financial institution is unable to
contact the owner of the account. Thereafter, the SCO must
notify the account holder that the account will be turned over
to the state if it remains unclaimed. For many years, the
financial industry has interpreted "activity" to constitute some
sort of human or "live" contact by the account holder (i.e.
going into the bank to make a deposit/withdrawal, writing a
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check, etc.) Today, many account holders deposit or withdraw
money from their financial institutions via Automated Clearing
House (ACH) transactions, also known as Electronic Fund
Transfers (EFT), and do not go into bank branches. For some,
depositing or withdrawing a specified monthly amount is the only
type of activity that occurs in their accounts. Further, some
people have savings accounts at multiple financial institutions
in order to maximize interest rates while retaining their
primary checking account in another financial institution.
Though the account holder may consider recurring
deposits/withdraws as regular account activity, the financial
industry does not. Instead, the financial industry considers
recurring ACH transactions as a passive activity and does not
consider this dispositive evidence that the account remains
active. Therefore, these active/"live" accounts are erroneously
considered dormant and trigger escheatment notices, which then
require the account holder to affirmatively confirm that the
account is truly active. If the account holder does not
respond, the State Controller's Office (SCO) must also send a
notice to the account holder. If the account holder fails to
respond to the SCO's notice, the funds in the account escheat to
the state.
The sponsor of this bill, the State Controller's Office,
contends that as a result of financial institutions not
acknowledging recurring ACH transfers as account activity,
thousands of people who have active accounts are unnecessarily
sent letters each year warning that failure to contact the
financial institution will result in escheatment of funds to the
SCO. Accordingly, this bill seeks to harmonize industry
practices with the law by specifying that transactions involving
electronic fund transfers, both one-time or recurring, shall be
considered activity for the purpose of determining whether there
has been a period of inactivity on an account. This bill is
supported by banks and credit unions and has received no
opposition to date.
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SUMMARY: Clarifies that transactions made through electronic
fund transfer shall constitute activity on the account for the
purpose of determining whether the law requires escheat of the
funds after a specified period of inactivity. Specifically,
this bill:
1)Defines "increased or decreased the amount of the deposit" and
"increased or decreased the amount of the funds or deposit"
to include account transactions that are initiated through an
electronic fund transfer, as defined in 12 C.F.R. 1005.3, and
are reflected in the books and records of the banking or
financial organization.
2)Includes account activity to include the following
transactions:
a) A single or recurring debit transaction authorized by
the owner.
b) A single or recurring credit transaction authorized by
the owner.
c) Recurring transactions authorized by the owner that
represent payroll deposits or deductions.
d) Recurring credits authorized by the owner or a
responsible party that represent the deposit of any federal
benefits, including social security benefits, veterans'
benefits, and pension payments.
EXISTING LAW, the Unclaimed Property Law:
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1)Provides for the escheat to the state of unclaimed property,
as defined, following reasonable efforts by the holder of the
property to notify the owner that the property is unclaimed
and will escheat to the state. Generally, unclaimed property
escheats to the state after three years since the last deposit
or contact with the owner or depositor of the property. (Code
of Civil Procedure Sections 1500 et seq. All further
references are to this code unless otherwise stated.)
2)Provides that any demand, savings, or matured time deposit, or
account subject to a negotiable order of withdrawal, made with
a banking organization, 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;
c) Otherwise indicated an interest in the deposit as
evidenced by a memorandum or other record on file with the
banking organization. (Section 1513 (a)(1)(A). )
3)Provides that a deposit or account shall not, however, escheat
to the state if, during the previous three years, the owner
has owned another deposit or account with the banking
organization, as specified, and, with respect to that deposit
or account has done any of the acts described in #2 a) through
c) above, and the banking organization has communicated
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electronically or in writing with the owner, at the address to
which communications regarding that deposit, account, or plan
are regularly sent, with regard to the deposit or account that
would otherwise escheat under #2 above. (Section 1513
(a)(1)(B).)
4)Applies the same rules in #2 and 3, above, with respect to
escheat of any matured investment certificate, or demand,
savings, or matured time deposit, or account subject to a
negotiable order of withdrawal, or other interest in a
financial organization or any deposit made therewith, as
specified. (Section 1513 (a)(2).)
FISCAL EFFECT: As currently in print this bill is keyed fiscal.
COMMENTS: This bill, sponsored by the State Controller's
Office, seeks to designate all transactions made through
electronic fund transfer (EFT) as activity with a person's bank
account for the purpose of determining whether there has been
sufficient activity on the account to trigger the escheat
process under the Unclaimed Property Law (UPL). According to
the author, this simple modernization of the statute will
eliminate unnecessary escheatment notices to be sent from the
bank to the account holder that require the account holder to
affirm the account's active status, and will also reduce the
number of accounts that unnecessarily escheat to the SCO when
there is current activity on the account in the form of
electronic transactions that are not necessarily considered by
financial institutions to be "activity."
Background of the UPL: The Unclaimed Property Law, enacted in
1958, establishes procedures for the escheat of unclaimed
personal property to the state. 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
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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) protect unknown owners by
locating them and restoring their property to them; and (2) 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
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, 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, as well as publish a notice to 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
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a database to discover if the state is holding any of their
property and, in some cases, to submit claims to recover the
funds or property.
Because of traditional notions of account "activity," some
accounts today may escheat unnecessarily when activity is
exclusively through recurring electronic transactions.
According to its proponents, this bill seeks to harmonize the
law and the daily business practices of financial institutions
and consumers in order to avoid accounts erroneously escheating
to the state. The issue can be boiled down to the question of
what constitutes account "activity." Neither current law, nor
regulations, are specific enough to answer this question,
particularly in light of changing technology that has changed
banking practices for many Californians. Proponents note that
the financial industry has long interpreted "activity" to
constitute some sort of "live" contact by the account holder
with the bank itself, while distinguishing electronic activity
as not necessarily evidence of "live" contact. According to the
SCO, live contact includes things such as automated teller
machine or in-person deposits or withdrawals, checks being
written, and individual online banking transactions known as
Automated Clearing House (ACH) payments; however, recurring
automated ACH payments and deposits do not count as live
contact.
Because this practice has apparently become an industry norm, it
creates the possibility that some accounts escheat to the state
unnecessarily by virtue of the fact that none of the electronic
"activity" is attributed to a live account-holder. As the
California Community Banking Network explains:
California law currently requires financial institutions to
notify the State Controller's Office (SCO) when there is no
"live" contact between an account owner and their account
for three years, and the financial institution is unable to
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contact the account owner. Thereafter, the SCO must notify
the account holder that their account will be turned over
to the state if it remains unclaimed. Many community bank
customers have more than one bank account and set up
recurring, automatic fund transfers in a secondary account
to be deposited into a primary account. Even though the
account holder may make regular "live" transactions using
that secondary account, they may never interact with the
financial institution that holds the account, which could
eventually result in that account being escheated.
This bill remedies the problem by clarifying in statute that the
term "increased or decreased the amount of the deposit" includes
account transactions initiated by electronic fund transfers,
thereby triggering one of the conditions that signals "live
contact" with the account, effectively preventing escheatment.
Under the current system, because recurring electronic fund
transfers are not recognized as account activity, financial
institutions have to spend a lot of time and effort to confirm
if an account is dormant. Administrative costs to send the
escheatment notices place an additional burden on financial
institutions. Proponents note that this solution may also
increase business and administrative cost savings because banks
and financial institutions would only have to send escheatment
notices to truly inactive accounts. More important to
consumers, unnecessary escheatment of funds to the state
requires the effort to claim and receive escheated funds.
When recurring electronic transactions continue after an account
holder's death. Under current law, financial institutions must
notify the SCO when there is no activity between an account
owner and his or her account for three years and the financial
institution is unable to contact the account owner. What if the
reason for no activity and no communication is that the account
holder has died? Under current law, the account would presumably
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end up escheating to the state, as the account holder would be
unable to withdraw or deposit money, engage in individual "live"
transactions, or communicate with the bank. Should recurring
EFT transactions to an account be counted as "live" activity and
prevent the conditions that otherwise trigger the escheat
process, it is conceivable that an account may continue to have
electronic deductions made each month until the account is
depleted, or until relatives or creditors of the account holder
intervene and alert the bank to the death of the account holder.
According to representative of credit unions and banks contacted
by the Committee, however, this concern is mitigated because the
financial industry already uses multiple strategies to ensure a
deceased account holder's account does not stay active in
perpetuity. Financial institutions currently become aware of an
account holder's death from a variety of sources including the
Social Security Administration via death notification entry,
family members, estate representatives, and obituary notices.
Recurring deductions to pay monthly bills are often identified
and stopped by family members or estate representatives after
the services they pay for are typically stopped soon after the
death of the account holder. The California and Nevada Credit
Union Leagues, for example, report that the "bleeding" of funds
from a decedent's account is rare and not an issue for their
member institutions. They contend that modernizing this process
is more beneficial for consumers and institutions alike.
REGISTERED SUPPORT / OPPOSITION:
Support
State Controller's Office (sponsor)
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California Community Banking Network
California Credit Union League
Opposition
None on file
Analysis Prepared by:Anthony Lew / JUD. / (916) 319-2334