BILL ANALYSIS
AB 1291
Page 1
Date of Hearing: April 21, 2009
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 1291 (Niello) - As Amended: April 2, 2009
PROPOSED CONSENT
SUBJECT : UNCLAIMED PROPERTY
KEY ISSUE : SHOULD THE UNCLAIMED PROPERTY LAW BE REFORMED TO
STRENGTHEN THE RIGHTS OF PROPERTY OWNERS AND ENSURE THAT
PROPERTY HOLDERS TAKE REASONABLE STEPS TO INFORM THEIR CUSTOMERS
ABOUT THE RISKS ASSOCIATED WITH ACCOUNTS LEFT DORMANT AND
UNCLAIMED PROPERTY ESCHEATING TO THE STATE?
FISCAL EFFECT : As currently in print this bill is keyed fiscal.
SYNOPSIS
This bill, sponsored by the State Controller's Office, proposes
modest changes to the Unclaimed Property Law that are intended
to strengthen the rights of property owners and ensure that
property holders take reasonable steps to inform their customers
about the risks associated with leaving accounts dormant and
escheat of unclaimed property to the state. The bill provides
for clearer notification requirements to owners and requires
holders to increase due diligence in locating owners of
unclaimed property. To minimize the escheat of the contents of
safe deposit accounts, which are typically forms of property
more sentimental in nature, this bill extends the holder
escheatment period from three years to five years and requires
greater notification. This bill also fulfills the state's
constitutional obligation to pay interest when returning funds
to claimants under the Unclaimed Property Law, as a result of a
recent 2007 decision by the U.S. District Court (Northern
District). There is no known opposition to this bill.
SUMMARY : Seeks various reforms of the Unclaimed Property Law
intended to strengthen property owners' rights and ensure that
property holders reasonably inform their customers about risks
associated with leaving accounts dormant and about the law that
causes unclaimed property to escheat to the state after a period
of inactivity. Specifically, this bill :
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1)Requires the escheat of specified property held or owing by a
business association to the state when the owner, for more
than three years, has not received tax reports or regular
statements by mail from the banking organization regarding the
funds or deposit. Further provides that receipt of a report
or statement by the owner is presumed if the banking
organization sent the report to the owner by first-class mail
and the report was not returned.
2)Permits banking and financial organizations, as defined, to
make reasonable efforts to notify owners of certain property
electronically when the owner has consented to electronic
notifications, that the customer's deposit, account, shares,
or other interest in the banking or financial organization
will escheat to the state pursuant to specified provisions of
law.
3)Codifies specific language and format requirements for the due
diligence letter sent to owners by holders to consistently
require holders to describe the escheat process to include the
necessity of filing a claim for the return of the property and
other required notice information, such as the time for the
last account activity.
a) Specifically, the face of the notice shall contain a
heading centered at the top that reads as follows: "THE
STATE OF CALIFORNIA REQUIRES US TO NOTIFY YOU THAT YOUR
UNCLAIMED PROPERTY MAY BE TRANSFERRED TO THE STATE IF YOU
DO NOT CONTACT US".
b) Permits the holder to provide additional due
diligence letters complying with these specifications at
any time.
4)Provides that, at the time a new account or safe deposit box
is opened with any banking organization, financial
organization or business association, as defined, the
organization or association must provide a written notice to
the person opening the account informing the person that his
or her property may escheat to the state if no activity occurs
on the account within a three year period.
5)Significantly revises the law concerning escheat to the state
of the contents of safe deposit boxes; more specifically, the
bill:
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a) Provides that a Safe Deposit Box shall not escheat if
the owner has a savings or checking account with the holder
which is active and not subject to escheat;
b) Requires holders to send a notice to owners of Safe
Deposit Boxes prior to reporting the property to the SCO;
c) Extends the holder escheatment period for safe deposit
boxes from the current three-year period to a five-year
period to allow owners a longer period of time to claim
their property from the holder before it is escheated to
the SCO;
d) Requires two holder due diligence notifications at two
different times, (1) Not less than two and one-half years
and not more than three years before reporting and (2) Not
less than six and not more than 12 months before reporting;
e) Requires that the second notice contain the following
statement: "This is our second and final notice to you
before the contents of your safe deposit or repository
account will be considered abandoned. If you do not contact
us, your property will be reported to the State of
California's Unclaimed Property Division. A previous notice
was mailed to you,
but we did not receive a response.";
f) Requires retention of "no value" contents of safe
deposit boxes for a period of not less than seven years
from the date of receipt.
6)Requires the Controller to add interest, at the rate of 5
percent per year or the bond equivalent rate of 13-week United
States Treasury bills, whichever is lower, to the amount of
any claim paid to the owner under these provisions for the
period the property was on deposit in the Unclaimed Property
Fund, except as specified. Authorizes the holder who pays the
owner property that has escheated to the state to seek
reimbursement to include interest payment required by the
Controller.
7)Requires that in order for a holder to be relieved of
liability for the property escheated to the Controller's
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Office, the holder must have complied with requirements for
sending due diligence letters to the owner.
8)Makes clarifying and technical changes to correct minor
problems relating to timing of notices, problems that stem
from enactment of SB 86, the omnibus budget trailer bill for
2007. Specifically:
a) Authorizes the Controller to postpone the delivery of
unclaimed property and the remit report required under law;
b) Clarifies that interest applies when a holder fails to
file a Notice Report on time or in the manner required by
law;
c) Clarifies that the timeframe for sending due diligence
letters is based on when the property is reportable instead
of transferable, thus ensuring consistency with other
provisions that reflect the fact that due diligence letters
are sent by the holder before the property is reported to
the Controller's Office.
EXISTING LAW :
1)States the intent of the Legislature that property owners be
reunited with their property, and that in making changes to
the unclaimed property program in conjunction with the Budget
Act of 2007, the Legislature intends to adopt a more expansive
notification program that will provide all of the following:
a) Notification by the state to all owners of unclaimed
property prior to escheatment.
b) A more expansive postescheatment policy that takes
action to identify those owners of unclaimed property.
c) A waiting period of not less than 18 months from
delivery of property to the state prior to disposal of
any unclaimed property deemed to have no commercial
value. (Code of Civil Procedure Section 1501.5(c).)
2)Requires the escheat to the state of specified property held
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by a business association when the owner, for more than three
years, 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.
(Code of Civil Procedure Sections 1513.5, 1516, 1520.)
3)Requires banking and financial organizations, as defined, to
make reasonable efforts to notify owners of certain property
by mail that the property will escheat to the state pursuant
to specified provisions of law. (Code of Civil Procedure
Sections 1513.5(a), 1516(d), 1520(b).)
4)Specifies content and format requirements for the due
diligence letter sent to owners by holders. (Code of Civil
Procedure Sections 1513.5(b), 1516(d), 1520(b).)
5)Provides that the contents of any safe deposit box or any
other safekeeping repository, held in this state by a business
association, escheat to this state if unclaimed by the owner
for more than three years from the date the agreement to rent
the box effectively terminated. (Code of Civil Procedure
Section 1514.)
6)Does not require the State to pay interest on claims paid to
owners for the period the property was on deposit in the
Unclaimed Property Fund.
7)Provides that a person who pays or delivers escheated property
to the State Controller under this chapter is relieved of all
liability to the extent of the value of the property so paid
or delivered for any claim which then exists, or which
thereafter may arise or be made in respect to the property.
(Code of Civil Procedure Section 1560(a).)
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COMMENTS : This bill, sponsored by the State Controller's Office
(SCO), proposes various reforms of the Unclaimed Property Law
that are intended to strengthen property owners' rights and
ensure that property holders reasonably inform their customers
about risks associated with leaving accounts dormant, and to
inform them about the law that causes unclaimed property to
escheat to the state after a period of inactivity.
Clearer Notification Requirements : Existing law only requires
holders to send a single due diligence letter at a specified
time to owners. If the owner fails to receive the letter or
mistakes the letter for junk mail, they may fail to realize that
the property soon becomes reportable and escheatable to the SCO.
This bill seeks to provide clearer notification to owners that
their property is in danger of escheat, with the optimal goal of
reuniting more owners with their property, prior to reporting to
the Controller's Office.
In addition, this bill seeks to notify owners about the
possibility under state law that their property may escheat to
the state if no activity occurs on a new bank account or safe
deposit box within a three year period. Consumers should
benefit from dissemination of information about the state's
escheat law so they can take steps to prevent their property
from escheating to the SCO. Requiring the business association
or bank to provide this notification whenever a new account or
safe deposit box is opened is a sensible time to provide such
information.
New Safe Deposit Box Guidelines Minimize Escheat of Sentimental
Items : This sponsor recognizes that items found in safe deposit
accounts often have little cash value, but may hold great
sentimental value to the owner. Under current law, escheated
items found in safe deposit boxes must either be destroyed or
auctioned for sale with the owner receiving the proceeds of a
sale, which is little consolation if a family heirloom is lost
to posterity.
This bill would help shield property having sentimental value
from escheating to the state by extending the dormancy period
from three years to five years, and by requiring holders to
notify owners more frequently that their property is at risk of
escheatment. In addition, extending the escheat period for safe
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deposit accounts would put California in line with the Uniform
Unclaimed Property Act, the basis for most other states'
unclaimed property statutes.
Interest Paid on Claimed Property: On October 12, 2007, a
federal court in California determined that the State is
constitutionally obligated to pay interest when returning funds
to claimants under the UPL. The Controller sought
reconsideration, stating that the rate of interest to be paid to
claimants was unclear under the court's order. The court denied
the motion. (Suever v. Connell, United States District Court
(Northern District) No. C-03-00156 RS, November 6, 2007.) This
bill specifies the rate of interest payable when the Controller
pays a claim. The interest rate will be the lower of 5 percent
or the bond equivalent rate of 13-week United States Treasury
bills, and applies to the period the property was on deposit in
the Unclaimed Property Fund.
Prior Legislation : SB 1319 (Machado) of 2008: Several parts of
this bill previously appeared in last year's SB 1319 (Machado).
The bills are not directly comparable because this bill drops
elements of SB 1319 and adds new elements that were not part of
that bill. That bill made it to the Governor's desk, but was
ultimately vetoed.
Governor's Veto Message : Importantly, this bill does not impose
additional reporting requirements or penalty increases for
failing to report unclaimed property that were the Governor's
stated basis for veto last year. In his veto message for SB
1319, the Governor wrote:
This bill would impose additional reporting
requirements on holders of unclaimed property and
increase the penalties for not reporting unclaimed
property to the State Controller. While I share the
goal of returning unclaimed properties to their
rightful owners, I cannot support increased
reporting requirements and penalties at this time.
In 2007, the budget bill I signed included numerous
reforms to the Unclaimed Property Law and
established better notification procedures. These
changes should have the chance to be properly
implemented and examined prior to any further
changes to the law. For these reasons, I am
returning this bill without my signature.
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REGISTERED SUPPORT / OPPOSITION :
Support
California State Controller's office (sponsor)
Opposition
None on file
Analysis Prepared by : Anthony Lew / JUD. / (916) 319-2334