7 THINGS ALL CALIFORNIA BANKS SHOULD BE AWARE OF REGARDING UNCLAIMED PROPERTY

The state of California is known for its scenic landscapes, endless sandy beaches and some of the most vibrant metropolitan areas in the country. When it comes to laws and regulations surrounding unclaimed property, however, the Golden State is known to have some of the harshest penalties and most stringent requirements.  This article highlights some of the most important topics for banks who remit unclaimed funds to the state of California to be aware of.

Penalties/Fees/Interest
If a holder is found to have not reported unclaimed or abandoned property in accordance with California escheat reporting laws, a fine of $100 per day is assessed to the violating holder for each day such report is not delivered to the State, up to a maximum of $10,000. In addition, if a holder pays or delivers unclaimed property in a timely manner, but files a report that is not in substantial compliance with the requirements of section 1530, the interest payable shall not exceed $10,000. A fine is assessed only after a reasonable amount of time has passed since the delivery of notice from the Controller’s office to the holder notifying them that a report is required. Intentionally neglecting or refusing to deliver escheated property to the State results in a minimum fine of $5,000, up to a maximum of $50,000. Holders who file after the California escheat reporting deadline for the Holder Notice Report or Holder Remit Report and have not obtained an extension will be assessed appropriate interest charges. Interest is assessed at 12% per year on the property from the date the property should have been reported, paid, or delivered. For property substantially past due, the interest can exceed the underlying liability. Unless a Holder can prove extenuating circumstances causing the late filing, the interest is assessed statutorily and will not be waived by the State.

Due Diligence Formats
Due diligence is the process of locating apparent owners of property that has remained dormant or inactive on a holder’s books and records. Holders must send notices to owners of securities, safe deposit boxes, and property with a value of $50 or more prior to reporting the accounts to the State Controller’s Office (SCO). California has some of the most stringent requirements for its due diligence letters and often can serve as a template for other jurisdictions. Some of the requirements include, but are not limited to:

1. Centered Heading that reads: “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”
2. Font Requirements and Language Required to Be in Bold
3. Notice must clearly state that the property will escheat to the State if a timely response to the notification is not received
4. Notice must be sent if the holder has in its records an address for the apparent property owner, which the holder’s records do not disclose to be inaccurate
5. Notice can be sent electronically with the property owner’s consent or mailed to the property owner’s last known address
6. Notice must include a form for the owner to indicate an interest in the property (except for Safe Deposit Box Property)

In addition, a holder can charge up to $2 against the value of the property for the cost of sending the notice when the property being reported has a value of $50 or greater

Dormancy Periods

Current dormancy periods for various banking transactions (not all inclusive) and instruments are as follows:

1. Demand, Savings, Matured Time Deposit Accounts: 3 years
2. Certified checks, bank drafts, cashier’s checks: 3 years
3. Safe Deposit Boxes: 3 years
4. Retirement Accounts (after fund becomes payable): 3 years
5. Money Orders: 7 years as of January 1, 2018, new legislation further defining whether item (i) above escheats to the State, based on specified transactions that are initiated electronically and are reflected in the books and records of a banking or financial organization as evidence of an increase or decrease in the amount of the funds or deposit in an account held by the banking or financial organization.

Note: CA A.B. 2258: Existing law prescribes the circumstances under which property held or owing by a business association escheats to the State. Existing law specifies that any demand, savings, or matured time deposit, or account subject to a negotiable order of withdrawal, made with a banking organization escheats to the state if the owner, for more than three years, has not increased or decreased the amount of the deposit. Existing law specifies that any demand, savings, or matured time deposit, or matured investment certificate, or account subject to a negotiable order of withdrawal, or other interest in a financial organization, escheats to the state when the owner, for more than three years, has not increased or decreased the amount of the funds or deposit.

Two Report Process Definition

1. Holder Notice Report
   1. First report in the two-report process
   2. Due Annually
   3. Submitted after holder due diligence is performed
   4. Due before November 1^st– not postmarked but received by 11/1
   5. Standard NAUPA format with all the property that remained unclaimed
   6. Submitting The Holder Notice Report
      1. Electronic format when reporting over 10 properties
      2. Paper report will suffice when reporting 9 or less
2. Holder Remit Report
   1. Occurs after the State issues its own due diligence letters to owners listed on the Holder Notice Report
   2. Due between June 1^st and 15^th in year following submission of Holder Notice Report
   3. Holder shall submit payment of unclaimed cash in the amount of $20,000 or more by Electronic Funds Transfer. Failure to make payment will result in 2% penalty
      1. If under $20,000 the holder may remit a check or use ETF

Negative reports
Holders that neither hold nor owe unclaimed property are not required to submit a report, although it is recommended that they do so by completing the filing the UFS-1 form only. The SCO may require the filing of such a report by sending notification to the holder.

VDA Process for CA
A Voluntary Disclosure Agreement involves contacting the jurisdiction(s) to forge an agreement between the holder and jurisdiction(s) to resolve the holder’s outstanding unclaimed property obligations. It is a holder’s opportunity to be forthcoming with any errors with unclaimed property reporting and work with the jurisdiction to fix those errors. The state of California, unlike most other states in the nation, does not offer a VDA program. This is why it is imperative to closely follow all state guidelines.

Common Remittance Errors

1. Reporting property too early
2. Remitting property with the Holder Notice Report
3. Not in standard NAUPA II electronic file format
4. Use of invalid property codes
5. Inaccurate dates for Property Starting Date or Last Contact Date
6. Lack of social security number (or not notifying the State that the information is unavailable)
7. Remitting a check for unclaimed property amounts exceeding $20,000
8. Not including a listing of legal entities addressed by the Report (for those Holders filing on a consolidated basis)

As seen in this article, there are many intricacies surrounding California unclaimed property. At Dunbar we know these complexities and work in concert with our institutional clients to understand their needs and create customized solutions to re-engage lost account owners.  For the past thirty years members of Dunbar’s leadership team have been restoring financial institutions’ inactive accounts to minimize unclaimed property exposure and maximize the value of assets retained. Please contact us to discuss how we can help your organization.