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Reporting unclaimed property properly has become an area of greater focus for credit unions in the wake of increased state scrutiny on the topic. While, in the past, state audits and interest assessments on credit unions were not as common, our office has seen an up-tick in recent months of questions from clients about the escheat process, in some cases stemming from a State Controller’s Office (“SCO”) assessment on property that the credit union allegedly failed to timely report. Based on our experience, we have compiled three common misconceptions held by credit unions when evaluating their unclaimed property reporting procedures. MISCONCEPTION #1 – “We consider our members (remitters) to be the ‘owners’ of cashier’s checks, so we measure escheat for these instruments 3 years from the date of the last contact with our member.” For cashier’s checks purchased in California, the “owner” is the payee or the person who has a legal or equitable interest in a cashier’s check, not the remitter. Cashier’s checks become escheatable 3 years from the date the check is payable (or from the date of issuance if payable on demand), when the owner has not corresponded or otherwise indicated an interest to the credit union concerning it for more than 3 years. Many credit unions run into issues relating to tracking cashier’s checks for escheat purposes, because they frequently have little to no other information about the owner/payee other than the payee’s name. Obviously, due diligence efforts in these instances may also be affected, and in some cases, may not even be possible. Nevertheless, failure to recognize the proper owner and report such unclaimed funds in the proper timeframe (for example, because the institution believed it was still in contact with the remitter) could result in interest and/or penalty assessments from the SCO based on years of accumulated unreported cashier’s checks. Any review of unclaimed property procedures should ensure such procedures properly address cashier’s checks. MISCONCEPTION #2 – “Because our institution is based in California, we escheat all our member deposit accounts to the State of California, no matter where members reside.” Property subject to escheat should only be reported to the State of California SCO if the last known address of the owner is in California, or if there is no address for the owner in the credit union’s records. By contrast, property for owners with last known addresses in other states should be reported directly to that other state. Unfortunately, reporting to another state must be done in compliance with that specific state's laws; this can be a significant compliance burden if your credit union has a strong out-of-state presence and many members with last known addresses in other states. This effort is complicated by the fact that California can have different remit due dates, due diligence requirements, and reporting procedures from other states. To help with this process, some credit unions with a national footprint have looked into hiring an escheat expert or consulting company to help them get a better grasp on the laws in other jurisdictions where their members reside; however, this should not be a replacement for the credit union’s own due diligence on the reporting requirements in its high-volume jurisdictions. MISCONCEPTION #3 – “We report and remit account funds to the SCO 3 years from the last transaction made by the member on that account.”  This is an overly simplistic misconception which could cause your institution to overlook some legitimate reasons that certain property may not be subject to escheat. Typically, this issue becomes important in situations where an institution receives an excessive interest assessment by the SCO for an alleged failure to timely report property. Your credit union should be familiar with those factors which trigger escheat (for more than 3 years, owner has not transacted on account, corresponded with the credit union, or otherwise “indicated an interest” in the funds, as evidenced by the credit union’s records), and those factors which prevent escheat (owner has another account that is not yet escheatable, and the credit union has communicated with the owner regarding that other account). Although every situation is different and must be dealt with on a case-by-case basis, some inquiries which may inform the process are:
  • Does the member have another deposit account/share certificate/individual retirement account/loan at the credit union?
  • Is that other account subject to escheat?
  • Has the member logged into online banking regarding any of his or her accounts or loans?
  • Has the member telephoned regarding any of his or her accounts or loans?
  • Did the credit union keep a record of any telephone calls or in-branch visits in its system account notes or elsewhere?
  • Has the member assigned authority to a personal representative or other agent, and has the credit union communicated with that person?
  • Does the credit union’s system for tracking the “last date of contact” with a member update upon the member’s last communication to the credit union? Or the credit union’s last communication to the member?
Although unclaimed property reporting may be routine, its recent resurfacing as a potential area of exposure for credit unions has brought renewed attention to the topic. After all, pursuant to California state statute, the SCO calculates interest assessments at a rate of 12% per annum from the date the property is due and reportable. Willful refusal to comply, of course, carries the risk of additional fines and penalties. Furthermore, if the SCO suspects that an institution has been reporting unclaimed erroneously, the agency has rather broad power to audit and inspect an institution’s procedures and records, a process which can be invasive and draining on time and resources (not to mention often resulting in additional findings of untimely reporting). Awareness of and attention to these issues can help refine your institution’s procedures to minimize the risk of incurring interest and/or penalties for noncompliance. Feel free to contact our office if you have questions in this area.