BILL ANALYSIS
AB 1291
Page 1
Date of Hearing: May 6, 2009
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Kevin De Leon, Chair
AB 1291 (Niello) - As Amended: April 2, 2009
Policy Committee:
JudiciaryVote:10-0 (Consent)
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill makes several modifications to the state's Unclaimed
Property Law (UPL), including:
1.Requiring the State Controller to add interest, based on a
benchmark rate, to the amount paid on a claim to an owner from
the Unclaimed Property Fund.
2.Revising provisions concerning escheat to the contents of safe
deposit boxes, including extending the holder escheatment
period from three years to five years, thus allowing owners a
longer time to claim their property from the holder before it
is escheated to the state, and requiring additional specified
notifications.
3.Increasing the time that property delivered to the Controller
with no apparent commercial value must be retained by the
Controller from 18 months to 7 years.
4.Includes, among the criteria demonstrating that property is
inactive for purposes of determining escheat to the state, the
situation in which tax reports or regular statements regarding
funds, a deposit, account, or plan that are mailed first class
from a banking or financial organization or a business
association are returned as undeliverable.
FISCAL EFFECT
1)Interest Payments . Annual revenue losses from including
interest payments would depend on actual interest rates, which
are currently at historic lows. At the current treasury bill
AB 1291
Page 2
rate of about 0.3%, the revenue loss in 2009-10 would be $1.7
million. Assuming an interest rate of 1%, the estimated
revenue losses would be of $5.7 million in 2009-10 and $11.3
million in 2010-11.
2)SCO Administrative Costs . Ongoing costs of $125,000 in 2009-10
and $200,000 annually thereafter for additional workload
related to increasing the holding period for property with no
commercial value.
3)Safe Deposit Boxes . General Fund revenue loss of about
$200,000 annually due to the longer holding period.
COMMENTS
1.Background . The UPL, enacted in 1958, establishes procedures
for the escheat of unclaimed personal property, whereby the
state maintains custody of the property in perpetuity, until
the owner claims the property. Under the UPL, there are three
significant parties: the owner, to whom the property actually
belongs; the holder, who has possession of the property; and
the state. A holder might be a bank, other money depositary, a
business that has issued a check to an individual or other
business, or a life insurance or annuity. A holder is simply
a trustee of the property while in their possession, but
during this time the holder generally uses the funds or the
property as an asset. 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. The state, through the
Controller, acts as the protector of the rights of the true
owner.
2.Purpose . This bill, sponsored by the State Controller's
Office (SCO), proposes various reforms of the UPL 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.
3.Paying Interest on Claimed Property . In October 2007, a
AB 1291
Page 3
federal district 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. This bill specifies the rate of interest
payable when the controller pays a claim as the lower of 5% 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. Also, the bill would provide
payments based on a simple interest calculation and only
prospectively (on and after January 1, 2010).
4.Prior Legislation . SB 1319 (Machado) of 2008, which contained
many of the provisions of AB 1291, was vetoed. The governor
principally objected to the bill's increases in penalties for
holders who failed to report unclaimed property to the SCO.
Those provisions are not included in AB 1291.
AB 2221 (Wolk) of 2008 contained similar provisions as AB 1291
to extend the escheat period for unclaimed property found in
safe deposit boxes from three years to five years and revise
the notification requirements for holders of unclaimed
property found in safe deposit boxes. AB 2221 was held on
Suspense in Senate Appropriations.
AB 2642 (Niello) of 2008 contained the provision of this bill
described in #4 of the summary. AB 2642 failed in the Senate
Judiciary Committee.
Analysis Prepared by : Chuck Nicol / APPR. / (916) 319-2081