Category: aggregate reporting

California Lowers Aggregate Reporting Threshold

The unclaimed property laws of most states provide for “aggregate reporting” of all items under a specified dollar amount.  For items under the threshold, the holder must still deliver the property to the state, but is not required to report the owners’ name and address information.  The measure is generally considered to be an accommodation to holders – relieving them, for example, of the obligation to report dozens (or hundreds, or thousands) of lines of name and address information for “small balance” items from $0.01 to up to $50 or $100.

Of course, if the holder is not required to report name and address information to the state, the state will not have that owner identifying information for the purpose of reuniting owners with their property.  For that reason, the states’ willingness to allow aggregate reporting has been criticized as inconsistent with the fundamental purpose of the unclaimed property laws – to have the state serve as custodian of an owner’s money.

Perhaps in response to those criticisms, California is taking steps to reduce the aggregate reporting threshold, and thus, reduce the number of items that are reported to the state without name and address information. Under the current California Unclaimed Property Law, items under $50 are permitted to be reported in the aggregate (i.e., without owner name and address information).  Pursuant to Assembly Bill 212, which was signed into law last week, the aggregate reporting threshold was reduced to $25.  While this will increase the reporting burden on holders to some extent, the expanded availability of owner name and address information will also presumably aid owners in finding and reclaiming their money from the state.  The new law goes into effect on July 1, 2014.

Aggregate Reporting Under the Microscope in California

Under most state unclaimed property laws, there exists a mechanism called “aggregate reporting” whereby the holder of the funds is permitted (or in some states, required) to report and remit items under a specific dollar amount (usually $50) in one lump sum, without providing owner name and address information.  As we’ve discussed previously in this space, while aggregate reporting reduces administrative burden on the holder and on the state, that process is arguably inconsistent with the primary purpose of the unclaimed property laws — to try and reunite owners with their missing funds.  Obviously, to the extent that the state does not have identification information for the owner of the funds, the state cannot search for that owner or take any action to return the funds.

A recent situation in California demonstrates this problem.  According to a report by CBS 13 Sacramento, a fifteen year old California resident learned that his $30 savings account was turned over to the state by his bank because of a lack of activity.  When he and his family went to search for the funds, however, they state was unable to locate the account.  They eventually contacted CBS 13 consumer investigation reporter Kurtis Ming, who learned that since 2007 California brought in more than $68 million in funds without owner name and address.  Ultimately, the bank – not the state – gave the money back to its customer, but the story isn’t over yet.

California Assemblymember Bonnie Lowenthal has authored a bill to close this unclaimed property “loophole” and would require holders to report owner-identification information for all amounts, regardless of size.  Assembly Bill 212 would remove the provisions of California unclaimed property law that permit balances of less than $50 to be reported in the aggregate, and would also require holders to send notice to all owners of unclaimed property — regardless of the balance.  The bill is currently before the Assembly Judiciary Committee.
 

The State as Custodian, Except When it Isn’t

Those who deal with unclaimed property on a regular basis are familiar with the theory that state unclaimed property laws are “custodial” in nature.  The state acquires possession of, but not title to, property that is reported under the law.  In non-legalese, that means the state gets to hold the property, but not necessarily to keep it.  As one state puts it, “[t]he purpose of the [unclaimed property] act is to provide a central repository in each state where citizens can seek any lost property that belongs to them.”  Though the view of the state as mere custodian is taken for Gospel, it is far from always the case.  In fact, there are many types of property where the state is not acting as custodian for the “rightful owner” because that owner is either unknown or does not exist.  For example:

Owner-Unknown Property — We start with the granddaddy of them all.  Under Texas v. New Jersey, unclaimed funds for which the holder does not have owner name or address information gets reported and remitted to the holder’s state of incorporation.  By definition, this property is not likely ever to be claimed by its rightful owner, because neither the state nor the holder know who that is.  This is not a minor issue; in many states — I’m looking at you, Delaware the amount of owner-unknown property received annually dwarfs the amounts held for known owners.


Estimated Property — In connection with an audit of a holder’s compliance under the 1995 Uniform Unclaimed Property act, and more recently, under Delaware law, the auditor is expressly permitted to estimate a holder’s unclaimed property liability for years where the holder has failed to maintain the required records.  This estimated property is not really “property”, but rather an estimation of the holder’s liability.  Of course, such estimated amounts paid to the state will never be subject to reclaim by the rightful owner. 

Aggregate Reporting — This last method, though meant to streamline reporting for holders, is perhaps the least in keeping with the “purpose” of unclaimed property laws.  Most states allow holders to report items under a certain dollar amount (generally $50) in the “aggregate” — i.e., in one lump sum without owner name or address information.  Because owner name and address is not provided in the report, of course, it cannot be published in a public notice or on the state’s website to be found by its rightful owner.  While some states merely give holders the option of reporting in the aggregate, some states take the position that items under the threshold “must” be reported in the aggregate.  To their credit, some states, such as Wyoming, request that holders having name and address detail refrain from aggregate reporting, even though it is permitted by the Uniform Act.  While it is more of an administrative burden to report and remit every name and address, doing so is more in keeping with the stated purpose of the unclaimed property laws.

Of course, as we have explored this week, reuniting owners with their property is not the only motive.  Indeed, in a short statement from the Uniform Law Commissioners (the authors of the various Uniform Unclaimed Property Acts) regarding “Why States Should Adopt the 1995 Uniform Unclaimed Property Act” the very first reason given is “REVENUE.”  Accordingly, while a significant purpose of modern unclaimed property laws is to preserve property for its rightful owner, modern escheat laws have developed such that it is not the only purpose.