BILL ANALYSIS Ó
AB 2258
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CONCURRENCE IN SENATE AMENDMENTS
AB
2258 (Eggman)
As Amended August 18, 2016
Majority vote
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|ASSEMBLY: |78-0 |(May 12, 2016) |SENATE: |39-0 |(August 23, |
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Original Committee Reference: JUD.
SUMMARY: Clarifies that transactions that are initiated
electronically shall constitute activity on the account for the
purpose of determining whether the law requires escheat of funds
after a specified period of inactivity. Specifically, this
bill:
1)Provides that a holder of property shall, commencing on or
before January 1, 2018, regard the following transactions that
are initiated electronically and are reflected in the books
and records of the banking or financial organization as
evidence that an owner has increased or decreased the amount
of the funds or deposit in an account:
a) A single or recurring debit transaction authorized by
the owner.
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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.
The Senate amendments clarify the holder's duty to treat
specified electronic transactions as evidence of activity by the
owner to increase or decrease funds in his or her account, and
postpone operation of this change to current law by one year,
until January 1, 2018.
EXISTING LAW, the Unclaimed Property Law:
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 (CCP) 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:
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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. (CCP 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 2a) through
c) above, and the banking organization has communicated
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. (CCP 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. (CCP Section 1513 (a)(2).)
FISCAL EFFECT: According to the Senate Appropriations
Committee, pursuant to Senate Rule 28.8, negligible state costs.
COMMENTS: This bill, sponsored by the State Controller's Office
(SCO), seeks to ensure that common electronic banking
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transactions are regarded as activity within 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 owner of the account that require that owner to
affirm the account's active status. In addition, the author
contends this change 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" under current law.
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
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
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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. (CCP 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. (CCP 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, 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
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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
when there is no "live" contact between an account
owner and their account for three years, and the
financial institution is unable to 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.
As recently amended in the Senate, this bill seeks to address
this problem by requiring holders to regard specified
transactions that are initiated electronically and are reflected
in the books and records of the banking or financial
organization as evidence that an owner has increased or
decreased the amount of the funds or deposit in an account.
This bill specifies these transactions as follows: 1) a single
or recurring debit transaction authorized by the owner; 2) a
single or recurring credit transaction authorized by the owner;
3) recurring transactions authorized by the owner that represent
payroll deposits or deductions; 4) 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. In order to give
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banks and other financial institutions more time to develop
procedures to comply with this new requirement, Senate
amendments postpone the operative date of this legislation by
one year so that, if enacted, it would take effect on January 1,
2018.
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 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 electronic funds transfer (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 representatives of some credit unions and banks,
however, this concern is mitigated because the financial
industry already uses multiple strategies to ensure a deceased
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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.
Analysis Prepared by:
Anthony Lew / JUD. / (916) 319-2334 FN: 0004709