William (BJ) Hanson
Executive Director of Dunbar
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.
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:
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
Current dormancy periods for various banking transactions (not all inclusive) and instruments are as follows:
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
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
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.