BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 2258| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- CONSENT Bill No: AB 2258 Author: Eggman (D) Amended: 6/20/16 in Senate Vote: 21 SENATE JUDICIARY COMMITTEE: 7-0, 6/14/16 AYES: Jackson, Moorlach, Anderson, Hertzberg, Leno, Monning, Wieckowski SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8 ASSEMBLY FLOOR: 78-0, 5/12/16 (Consent) - See last page for vote SUBJECT: Unclaimed property SOURCE: California State Controller DIGEST: This bill provides 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 to the state. ANALYSIS: Existing law: 1)Requires, under the Unclaimed Property Law (UPL), that property held or owing by a business association that is AB 2258 Page 2 unclaimed for more than three years, as specified, shall be reported to the State Controller and turned over to the state. (Code Civ. Proc. Secs. 1513, 1513.5, 1530-1532.) 2)States 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. Sec. 1513 (a).) 1)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 $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.) 2)Provides that within one year after payment or delivery of AB 2258 Page 3 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.) 3)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 $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 Controller. (Code Civ. Proc. Sec. 1531.) 4)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: 1)States, 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 AB 2258 Page 4 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. 1)Makes other technical and conforming changes to existing law. Background The 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 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 AB 2258 Page 5 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 provides that electronic funds transfers constitute activity for purposes of determining whether activity has occurred with respect to such property. Comments 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 AB 2258 Page 6 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: 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. Related/Prior Legislation AB 2258 Page 7 SB 1115 (Leno, 2016) eliminates 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 UPL even if the holder of those records does not believe that he or she has failed to report property under the law. The bill requires a court to award the Controller its costs and attorney fees if he or she prevails on an action to enforce the UPL. The bill is pending in the Senate Judiciary Committee. AB 355 (Garcia, Chapter 297, Statutes of 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, Chapter 128, Statutes of 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 Controller's Office for recovery of property that has escheated to the state. The 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. The bill died in the Assembly Appropriations Committee. 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 AB 2258 Page 8 escheatment period for most types of unclaimed property from three years to five years. This bill failed passage in the Assembly Judiciary Committee. AB 1291 (Niello, Chapter 522, Statutes of 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. 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. The bill was vetoed by Governor Schwarzenegger. SB 86 (Committee on Budget and Fiscal Review, Chapter 179, Statutes of 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. The 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, Chapter 304, Statutes of 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 2258 Page 9 AB 1772 (Harman, Chapter 813, Statutes of 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. The bill was held in the Assembly Appropriations Committee. FISCAL EFFECT: Appropriation: No Fiscal Com.:YesLocal: No SUPPORT: (Verified8/2/16) California State Controller (source) California and Nevada Credit Union Leagues California Bankers Association California Community Banking Network California Credit Union League OPPOSITION: (Verified8/2/16) None received ASSEMBLY FLOOR: 78-0, 5/12/16 AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker, Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Calderon, AB 2258 Page 10 Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden, Irwin, Jones, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Quirk, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood, Rendon NO VOTE RECORDED: Burke, Jones-Sawyer Prepared by: Tobias Halvarson / JUD. / (916) 651-4113 8/3/16 19:31:25 **** END ****