General Publications October 27, 2016

“Calif. Unclaimed Property Change For Banks, Customers,” Law360, October 27, 2016.

Extracted from Law360

On Sept. 22, 2016, California Governor Jerry Brown signed AB 2258 into law, which revises California’s Unclaimed Property Law (UPL) to expressly recognize that certain electronic recurring transactions constitute “owner-generated activity” that would prevent accounts held by a banking or financial organization from being considered presumed abandoned.

As described by the bill’s author, AB 2258 effectuates a “simple modernization of the statute,” which will “eliminate unnecessary escheatment notices to be sent from the bank to the account holder that require the account holder to affirm the account’s active status, and will also reduce the number of accounts that unnecessarily escheat to the [State Controller’s Office] when there is current activity on the account in the form of electronic transactions that are not necessarily considered by financial institutions to be ‘activity’ under the current law.” (See 4/19/2016 Assembly Committee on Judiciary Analysis.)

In particular, AB 2258 amends Cal. Civil Proc. Code § 1513, which provides in subdivision (a) that an account held by a banking or financial organization (including demand, savings, or matured deposit accounts) is presumed abandoned if within the last 3 years, the owner has not taken certain actions with respect to the account, including increasing or decreasing the amount of the funds or deposit, cashing an interest check, corresponding electronically or in writing with the bank or financial organization regarding the account, or otherwise indicating an interest in the account.

Under existing law, the effect of a recurring transaction such as an automatic deposit or withdrawal is unclear.

However, AB 2258 adds new language providing as follows:

(c) A holder shall, commencing on or before January 1, 2018, regard the following transactions that are initiated electronically and are reflected in the books and records of the banking or financial organization as evidence that an owner has increased or decreased the amount of the funds or deposit in an account, for purposes of paragraphs (1) and (2) of subdivision (a):

(1) A single or recurring debit transaction authorized by the owner.

(2) A single or recurring credit transaction authorized by the owner.

(3) Recurring transactions authorized by the owner that represent payroll deposits or deductions.

(4) Recurring credits authorized by the owner or a responsible party that represent the deposit of any federal benefits, including social security benefits, veterans’ benefits, and pension payments.

Thus, as a result of AB 2258, it is clear that automatically recurring transactions authorized by the account owner must be considered by the holder to be owner-generated activity preventing the account from being considered presumed abandoned (and thus reportable to California as unclaimed property). Such transactions would include, for example:

  • A recurring automatic debit that the owner has set up to pay a monthly bill, such as a mortgage or credit card payment;
  • A recurring automatic credit that the owner has set up to move funds into a savings account; and
  • The direct deposit of an owner’s monthly paycheck by an employer into his/her account.

AB 2258 is consistent with the Revised Uniform Unclaimed Property Act of 2016, which recognizes technological changes in property management. Section 210 of the Revised Uniform Property Act provides that “making a deposit into or withdrawal from an account at a financial organization, including an automatic deposit or withdrawal previously authorized by the apparent owner other than an automatic reinvestment of dividends of interest” is an indication of an apparent owner’s interest in property.

In our view, this interpretation of the UPL is not only correct, but is also consumer-friendly. In particular, an account that is being relied on for withdrawals and deposits will not be erroneously escheated to California, which could cause significant interruption to a consumer’s affairs.

Indeed, it would seem to make little logical sense to require escheatment of an account simply because all of the activities that are occurring are automated in nature. Moreover, as the bill’s proponents note, “unnecessary escheatment of funds to the state requires the effort to claim and receive escheated funds.” This amendment should “harmonize the law and the daily business practices of financial institutions and consumers.”

Theoretically, AB 2258’s changes should also be holder-friendly, in that there is no need to try to distinguish between transactions that are recurring in nature and those that are one-time only. Both types of transactions are equally indicative of owner-generated activity.

The proponents of AB 2258 recognize this problem, pointing out that “[u]nder the current system, because recurring electronic fund transfers are not recognized as account activity, financial institutions have to spend a lot of time and effort to confirm if an account is dormant.” (See 8/24/2016 Assembly Floor Analysis.) The proponents also note that industry practice has been to require evidence of “live” contact, which does not consider electronic recurring transactions; hence the need for the legislation.

On the other hand, practically speaking, it seems likely that AB 2258 will require many banks to adjust their systems to track and monitor electronic recurring transactional activity.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
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