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
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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
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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
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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:
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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.
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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
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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.
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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)
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Assembly Appropriations Committee (Ayes 20, Noes 0)
Assembly Judiciary Committee (Ayes 10, Noes 0)
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