BILL ANALYSIS Ó SENATE JUDICIARY COMMITTEE Senator Hannah-Beth Jackson, Chair 2015-2016 Regular Session AB 2258 (Eggman) Version: March 16, 2016 Hearing Date: June 14, 2016 Fiscal: Yes Urgency: No TH SUBJECT Unclaimed Property DESCRIPTION The Unclaimed Property Law (UPL) governs the disposition of unclaimed property, including the escheat of certain property to the state, and generally requires the State Controller to mail a notice to each person who appears to be entitled to escheated property. This bill would provide that specified transactions initiated through an electronic funds transfer that are reflected in the books and records of a banking or financial organization shall constitute account activity for purposes of determining whether property is unclaimed and subject to escheat. BACKGROUND The Unclaimed Property Law (UPL), enacted in 1958, establishes procedures for the escheat of unclaimed personal property held by business associations. Under the UPL, property that remains unclaimed for a set period of time "escheats" to the state, which means the state gains custody and control over the property in perpetuity until it is claimed by the owner. The UPL assigns various rights and responsibilities to the owners and holders of unclaimed property, as well as to the state. The "owner" is the person to whom the property actually belongs. The "holder" is the person who has possession of the property. A holder might be a bank or other money depositary (e.g., one that holds deposits of an owner's money or holds property in a safe deposit box), a business that has issued a check to an AB 2258 (Eggman) Page 2 of ? individual or other business, or the issuer of a life insurance policy or an annuity. The holders of unclaimed property have no interest in that property. (See Bank of America v. Cory (1985) 164 Cal.App.3d 66, 74.) A holder acts rather as a trustee of the property while it is in the holder's possession. The UPL has dual objectives: (1) to reunite owners with unclaimed funds or property; and (2) to give the state, rather than the holder, the benefit of the use of unclaimed funds or property. (Bank of America v. Cory, 164 Cal.App.3d at 74; 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 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. (Code Civ. Proc. Secs. 1530, 1532.) The Controller is then required to mail a notice to each person who appears to be entitled to unclaimed property according to the report filed by the holder, and must publish notice to apparent owners of the property in newspapers of general circulation. (Code Civ. Proc. Secs. 1531, 1531.5.) The UPL also delineates the procedure by which a person with an interest in escheated property may file a claim to recover the property from the state. The Controller maintains a public Web site where individuals may discover whether or not the state is holding any of their funds or property, as well as a portal to submit claims to recover the funds or property. (See https://ucpi.sco.ca.gov/ucp/) Generally speaking, unclaimed property is subject to escheat when the owner of the property, such as an account holder at a bank, fails to conduct any activity with respect to the property or otherwise indicate an interest in it for a period of three years. This bill would provide that electronic funds transfers constitute activity for purposes of determining whether activity has occurred with respect to such property. CHANGES TO EXISTING LAW Existing law , the Unclaimed Property Law (UPL), requires property held or owing by a business association that is unclaimed for more than three years, as specified, to file a report with the State Controller and to turn over that property AB 2258 (Eggman) Page 3 of ? to the state. (Code Civ. Proc. Secs. 1513, 1513.5, 1530-1532.) Existing law specifies that a demand, savings, or matured time deposit, matured investment certificate, or account subject to a negotiable order of withdrawal, made with a banking or financial organization, as specified, is subject to escheat when the owner, for more than three years, has not done any of the following: increased or decreased the amount of the funds or deposit, cashed an interest check, or presented the passbook or other similar evidence of the deposit or account for the crediting of interest; corresponded electronically or in writing with the banking or financial organization concerning the funds or deposit; or otherwise indicated an interest in the funds or deposit as evidenced by a memorandum or other record on file with the banking or financial organization. (Code Civ. Proc. 1513 (a).) Existing law provides that, except as specified, when the holder of unclaimed property has in its records an address for the apparent owner of property valued at fifty dollars ($50) or more, the holder shall make reasonable efforts to notify the owner that the owner's property will escheat to the state on a specified date. The notice shall be mailed not less than six nor more than 12 months before the time when the owner's property would escheat and become reportable to the Controller. (Code Civ. Proc. Sec. 1520.) Existing law provides that within one year after payment or delivery of escheated property, the Controller shall cause a notice to be published, in a newspaper of general circulation which the Controller determines is most likely to give notice to the apparent owner of the property, that information concerning the amount or description of the property may be obtained by any persons possessing an interest in the property by addressing an inquiry to the Controller. (Code Civ. Proc. Sec. 1531.) Existing law provides that the Controller shall also mail a notice to each person having an address listed in the report from the holder who appears to be entitled to property of the value of fifty dollars ($50) or more that has escheated under the UPL. The Controller shall mail the notice to the apparent owner for whom a current address is obtained if the address is different from the address previously reported to the AB 2258 (Eggman) Page 4 of ? Controller. (Code Civ. Proc. Sec. 1531.) Existing law authorizes any person, except another state, who claims an interest in property paid or delivered to the Controller to file a claim to the property. (Code Civ. Proc. Sec. 1540(a).) This bill provides, for purposes of the above provisions, that the terms "increased or decreased the amount of the deposit" and "increased or decreased the amount of the funds or deposit" includes the following transactions that are initiated through an electronic fund transfer and are reflected in the books and records of the banking or financial organization, as specified: a single or recurring debit transaction authorized by the owner; a single or recurring credit transaction authorized by the owner; recurring transactions authorized by the owner that represent payroll deposits or deductions; and 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. COMMENT 1.Stated need for the bill The author writes: This bill clarifies that transactions made through electronic fund transfers (EFTs) shall constitute activity on an account for the purpose of determining whether the state's unclaimed property law requires escheat of the funds after a specified period of inactivity. AB 2258 will allow all [EFT] transactions to count as a person's "live" contact with their account if their financial institution has communicated electronically or in writing with the owner of the account during the preceding three years. As a result, "live" accounts will not unnecessarily escheat to the State Controller's Office and account holders will not receive notices requiring them to contact their financial institution to affirm they are still using their account. The sponsor, the California State Controller, writes: AB 2258 (Eggman) Page 5 of ? Under current law, when a person does not have any "live" contact with accounts at a single financial institution (FI) for three years, the FI is required to contact the account owner. If the FI cannot successfully contact the owner, then SCO [the State Controller's Office] must attempt to contact the owner. If SCO cannot locate the owner, then the account escheats to 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. As a result, thousands of people who have active accounts are unnecessarily sent letters each year warning that failure to contact their FI will result in escheatment to SCO. In cases where the owner does not respond, the account does escheat . . . By allowing all ACH transactions to count as a person's live contact with their bank account, AB 2258 will ensure account holders will not receive unnecessary notices requiring contact with an FI to affirm active status, and live accounts will not unnecessarily escheat to SCO. 2.Modernization of the Unclaimed Property Law As noted above, the Unclaimed Property Law (UPL) has two parallel objectives: (1) to reunite owners with their unclaimed funds or property; and (2) to give the state, rather than the holder, the beneficial use of unclaimed funds or property. (Bank of America v. Cory (1985) 164 Cal.App.3d 66, 74.) Despite its protective intent, the UPL occasionally causes accounts at banks and financial institutions to escheat to the state even when they are still in use by the account holder simply because the law does not recognize such use as "account activity." This bill would update how the UPL defines account activity to take into consideration the modern prevalence of automated and electronic banking. Technological advances in the banking and financial sectors have altered how consumers interact with these institutions and conduct transactions with respect to their accounts. Many consumers now prefer to deposit funds into accounts using automated and electronic methods such as direct deposit, in lieu of receiving and depositing paper checks at a branch office. AB 2258 (Eggman) Page 6 of ? Indeed, many employers and government agencies now require funds recipients to accept payment via direct deposit into their accounts instead of by paper check, both because of the cost savings made available through automation and because of the increased security provided by modern electronic banking systems. According to the California Community Banking Network, who writes in support of this bill: [m]any 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 would help eliminate the unnecessary escheat of active accounts to the State Controller's Office by recognizing that certain automated or electronic transactions constitute "activity" for purposes of determining whether an account has become unclaimed. Specifically, this bill would recognize single or recurring transactions initiated through an electronic fund transfer authorized by the account owner, such as payroll deposits and deductions, deposits of federal benefits including social security and veterans benefits, and pension payments, as qualifying activity to keep an account from escheating. Support : California Community Banking Network; California Credit Union League Opposition : None Known HISTORY Source : California State Controller Related Pending Legislation : SB 1115 (Leno, 2016) would eliminate an existing requirement that the Controller have a reason to believe a person has failed to report unclaimed property prior to examining that person's records, and would instead state that the Controller may examine records under the Unclaimed Property Law (UPL) even if the holder of those records does not believe that he or she has failed to report property AB 2258 (Eggman) Page 7 of ? under the law. This bill would require a court to award the Controller its costs and attorney fees if he or she prevails on an action to enforce the UPL. This bill is pending in the Senate Judiciary Committee. Prior Legislation : AB 355 (Garcia, Ch. 297, Stats. 2015) authorized the State Controller to mail a separate notice to an apparent owner of a United States savings bond, war bond, or military award inside a safe deposit box or other safekeeping repository whose name is shown on or can be associated with the contents of a safe deposit box or other safekeeping repository and is different from the name of the reported owner. AB 1275 (Chau, Ch. 128, Stats. 2013) revised the UPL to only allow an owner of, instead of a person with an interest in, property to file a claim with the State Controller's Office for recovery of property that has escheated to the state. This bill also revised the definition of "owner" to remove a personal representative and include an estate representative, conservator, or guardian. AB 1011 (Salas, 2013) would have required the Controller to add interest, at specified rates, to the amount of any claim paid by the Controller to an owner under the UPL. This bill died in the Assembly Committee on Appropriations. AB 2117 (Niello, 2010) would have eliminated the regular transfer of unclaimed property funds from the Abandoned Property Fund to the General Fund, would have required the Controller to add an interest payment to any claim for unclaimed property that the Controller pays to an owner, and would have extended the escheatment period for most types of unclaimed property from three years to five years. This bill failed passage in the Assembly Committee on Judiciary. AB 1291 (Niello, Ch. 522, Stats. 2009) made various reforms to the UPL to strengthen property owners' rights and ensure that property holders reasonably inform customers about risks associated with leaving accounts dormant and the potential for escheatment of property after a period of inactivity. AB 2258 (Eggman) Page 8 of ? SB 1319 (Machado, 2008) would have relieved a holder of escheated property of liability if the holder complied with notification requirements, would have increased civil penalties for non-compliance with the UPL, and would have revised notification requirements for holders of unclaimed property. This bill was vetoed by Governor Schwarzenegger. SB 86 (Committee on Budget and Fiscal Review, Ch. 179, Stats. 2007) modified the procedures governing the disposition of unclaimed property by, among other things, requiring the Controller to mail a notice, as specified, to each person having an address listed for property reported to the Controller under the UPL who appears to be entitled to escheated property valued at $50 or more. This bill requires the Controller to establish and conduct a notification program designed to inform owners about the possible existence of unclaimed property received pursuant to the UPL, and made specified changes regarding the duties of a holder of property that has escheated and the duties of the Controller after receiving the property, including a requirement that the Controller retain the property for 18 months from specified dates. AB 378 (Steinberg, Ch. 304, Stats. 2003) reduced the escheatment period from five years to three years for unclaimed bank checks and deposit accounts, and from three years to one year for unclaimed wages and salaries. AB 1772 (Harman, Ch. 813, Stats. 2002) prescribed the notice and information that a bank or financial institution must give to owners of financial accounts that are about to escheat to the state, and required the same notice to be given by other holders of tangible and intangible property subject to the UPL. SB 673 (Speier, 2001) would have provided for notices to be sent by mail from the Controller to apparent owners of unclaimed property, and for the Controller to take further steps, including searches of other governmental records and outreach to the general public, to alert owners that their unclaimed property had escheated to the state. This bill was held in the Assembly Committee on Appropriations. Prior Vote : Assembly Floor (Ayes 78, Noes 0) AB 2258 (Eggman) Page 9 of ? Assembly Appropriations Committee (Ayes 20, Noes 0) Assembly Judiciary Committee (Ayes 10, Noes 0) **************