Abandoned and unclaimed property legislation is evolving rapidly as holder companies take a stand against what they believe is overreaching enforcement by auditors and states. States continue to press the boundaries of the law to protect the rights of consumers.
MarketSphere keeps an eye on current developments in unclaimed property law and the way the laws affect our clients. In the last year, we have seen a flurry of legislative adjustments related to contingent fee auditors—an area of great concern to holders, who believe the condition of contingent fees creates incentive for auditors to unfairly assess past due amounts. Other legislation of note is related to the overall audit process, due diligence and Delaware’s new VDA and audit manual.
Here’s the scoop:
Arizona Bill Would Put a Stop to the Use of Contingent Fee Auditors (2016)
In January of this year, Arizona introduced a bill that would eliminate third-party contingent-fee auditors, not only for unclaimed property, but for other state uses, as well. House Bill 2343 would allow the use of third-party auditors, but would require a less contentious hourly payment structure that many believe is more fair. Contingent fees are fees paid based on the amount of unclaimed property found. The more unclaimed property auditors find, the more money they make in contingency fees. Other states are passing similar legislation.
Massachusetts Bill Imposes Ban on Use of Contingent Fee Auditors (2015)
Last November, the Massachusetts legislature conducted a hearing on MA Senate Bill 1710—another legislative bid to eliminate the use of contingent fee auditors by the Massachusetts Department of Revenue. The bill would cover the use of contingent fee auditors for both tax purposes and unclaimed property purposes. Not only would the new law ban the use of contingent fee auditors going forward, but it would prohibit the renewal of contingent fee contracts and put a stop to the award of contingent fees for any new audits after the date the bill is passed.
Michigan’s Alternative Audit Process (2015)
This legislation is one example of a new breed of unclaimed property legislation that reduces holder burdens in order to give them incentive to come into compliance. The theory is that a streamlined audit process will bring more holders into compliance and get them escheating regularly. In the long run, this could be good for property owners who could be more easily reunited with their property. As with other legislation of this type, the law provides a limit on the amount of time an unclaimed property audit can take to complete. The audit has to be conducted under special rules and contains other limitations, as well, such as a statute of limitations and a less aggressive requirement regarding voided checks. This streamlined audit is only available to certain organizations incorporated in the state or those that have their principal place of business in Michigan.
Hawaii: Electronic Unclaimed Property Due Diligence (2016)
At the beginning of this year, Hawaii took an inevitable step toward the incorporation of electronic notifications in abandoned and unclaimed property reporting. The bill requires holders to send due diligence correspondence via email when an owner’s email address is available. This not only adds an extra avenue of communication and increases the likelihood that owners will be found, but it also helps establish electronic contact as an acceptable proof of interest in a property, which can keep the property from becoming dormant and escheatable. It will be interesting to see how this area of legislation develops and how it influences the adoption of new contact definitions.
Delaware Unclaimed Property Audit Manual Falls Short of its Goals (2015)
In an effort to make unclaimed property audits less burdensome for holders, the state of Delaware has been working on a number of legislative changes for the past couple of years. The effort culminated this year in the publication of a draft of a required unclaimed property manual that was billed as a way to make the audit process more transparent and predictable for holders. The manual does include some relief for holders, such as access to the contracts between the state and unclaimed property auditors. However, the consensus seems to be that the manual falls short of its goals of transparency and predictability. In particular, the manual leaves open-ended certain limitations on the state’s ability to manipulate the scope of an audit.
Watch this space, as well as MarketSphere’s KeepUP newsletter, for ongoing updates!