New Jersey recently introduced legislation to reduce the abandonment period for travelers checks from 15 years to three years. This is just one in a long line of reductions in unclaimed property dormancy periods that make up a bothersome trend. What’s the motivation for this? Many people believe reduced dormancy periods for unclaimed property are clearly an attempt by states to add money to shrinking budgets without having to raise taxes.
Whether or not this is true, the reduction of dormancy periods creates problems for holders and owners of unclaimed property.
Consumers’ right to let property sit
Because unclaimed property laws are designed to protect consumers, let’s begin there. When a person deposits money into savings or invests money long-term, the person might intend for the money to sit in the account without touching it for a long time while the account grows. The same goes for emergency savings. Owners are rarely told accounts must be kept live with some type of activity over a specific time period.
If an owner moves and forgets to send a new address, the holder might not be able to find the owner. After a relatively short period of time—much shorter than owners might expect—the holder could be legally bound to turn the money over to the state of the owner’s last known address or, when no address exists for the owner, to the holder’s state of incorporation, making it difficult for the owner to claim. Interest and equity earnings come to a halt. Years later, when the consumer tries to cash out, the account not only will not have earned what they expected, the money is retrievable only after following a sometimes complicated and time-consuming claimant process. The burden of proof of ownership lies with the owner, who didn’t do anything wrong to lose control of the property.
Depending on account size, consequences of shortening dormancy periods could be devastating for an owner, including jeopardizing retirement and children’s educations.
Holders’ right to retain property
Although unclaimed property laws exist to protect consumers, holders of consumers’ property also have rights that can be compromised by shorter dormancy periods.
Shrinking dormancy could restrict the right of a business and customers to designate terms of their own contracts. If laws change after contracts have been entered into, it could interfere with a business’s ability to fulfill existing customer contracts.
Some states want shorter dormancy periods to keep holders from realizing unfair gains from the holding of owners’ property. It is true unclaimed property laws were created in part to keep holders from abusing their right to possess consumers’ property. However, financial gain is why some businesses agree to hold and pay proceeds to owners in the first place. By their nature, some businesses have a right to benefit from the use of property while waiting for consumers to reclaim it, as long as they make good on payment of interest and equity and turn over property upon owners’ demand.
How to avoid negative consequences of shortened dormancy periods
No one knows whether dormancy periods will continue to be shortened or lengthened as a result of recent debates. While it’s being sorted out, which could take years, we suggest holders take specific actions to avoid negative consequences:
- Communicate with owners frequently to delay onset of dormancy periods and avoid statutory due diligence. Be sure the communication type is inarguably considered to be “contact” under state laws.
- Put concrete processes into place to capture address changes. Educate customers about the importance of current information.
- Make sure complete owner contact information is acquired when accounts are first opened. In some cases, this isn’t feasible, as with gift cards, and other tactics should be used to reduce negative impact of short dormancy periods. (Ask us for more information.)
- Take steps to align contract periods with abandonment periods to reduce the need to escheat property. Begin by assessing your exposure to potential abandonment periods for property types you hold.
The Uniform Law Commission (ULC) is debating these issues for the upcoming revision of the Uniform Unclaimed Property Act. Some holders and states are debating the issues through litigation. MarketSphere keeps an eye on dormancy issues for our clients, and we will share any substantial news here in our blog.