Unclaimed Property Law: Which State's Laws Apply?
Written By David Park, NAFCU, Regulatory Compliance Counsel
Every credit union is subject to state unclaimed property law. But what if your credit union has branches and members in several different states? Which state's unclaimed property law is relevant? This is the question that I will answer at the end of the blog. But before we get to that, let's have a general discussion about some basic concepts of unclaimed property law.
Unclaimed Property Law
Unclaimed property law generally governs when certain types of property held on behalf of an owner is presumed abandoned or unclaimed. The Uniform Law Commission (ULC), which is an organization that aims to promote consistency of state laws through the creation of uniform laws, developed the Uniform Disposition of Unclaimed Property Act in 1954. The act has been amended several times over the years, and most states have adopted parts of at least one version of the uniform unclaimed property act. The prefatory note to the Revised Uniform Unclaimed Property Act (2016) (the Revised Act) indicated that California, New York, and Texas were among the states that have not adopted one version of the uniform unclaimed property act. To see if your state has adopted a version of the uniform act, you can review the ULC's website.
Application to Financial Institutions
Article two of the Revised Act explains when property is presumed abandoned or unclaimed. Property, like funds in a share account, that is possessed by a credit union for the benefit of one of its members is presumed abandoned or unclaimed after a specified amount of time passes without some act occurring. For example, section 201(5) of the Revised Act provides the general rule about when things like savings accounts and share certificates are presumed abandoned or unclaimed:
"The following property is presumed abandoned if it is unclaimed by the [member] during the period specified below:
* * * *
5) a payroll card or demand, savings, or time deposit, including a deposit that is automatically renewable, three years after the maturity of the deposit, except that a deposit that is automatically renewable is deemed matured on its initial date of maturity unless the apparent owner consented in a record on file with the holder to renewal at or about the time of the renewal[.]"
While the Revised Act presumes that demand, savings, or time deposits are abandoned or unclaimed three years after maturity, please keep in mind that your state's unclaimed property law - even if the state has adopted some version of the uniform unclaimed property act - may differ. So you may want to consult with local counsel to find out the relevant period in your particular state.
Section 210(a) of the Revised Act expresses the concept that "[t]he period after which property is presumed abandoned is measured from the later of: (1) the date the property is presumed abandoned . . . or (2) the latest indication of interest by the apparent owner in the property." Section 210(b) describes the types of acts or occurrences that constitute an indication of an apparent owner's interest in property. Some relevant examples include
- Accessing the account or information concerning the account;
- A deposit into an account, including an automatic deposit authorized by the apparent owner but not an automatic reinvestment of dividends or interest;
- An oral communication by the member to the credit union concerning the account; or
- Any other action by the member that reasonably demonstrates to the credit union that the members knows the account exists.
Again, your state's unclaimed property law may differ when it comes to what is considered an indication of interest in the property. And local counsel can provide guidance about how your state's laws may diverge from the Revised Act.
What does this mean for your credit union? It underscores the importance of understanding what your state considers to be an indication of interest in the property. If there is an indication of interest in the property, then the statutory period related to the presumption of abandonment would begin to run again. In other words, the clock would essentially reset on whether property is presumed abandoned or unclaimed under state law. But once property is presumed to be abandoned or unclaimed, it is subject to the rules and processes for a particular state obtaining custody of the abandoned or unclaimed property.
Choice of Law
But getting back to the question at hand, which state's unclaimed property law applies? Or in other words, which state is entitled to custody of the funds that are presumed abandoned or unclaimed? The prefatory note to the Revised Act supplies the answer to this question: "The rules for determining which state has the prior right to take custody of unclaimed property were set out by the U. S. Supreme Court in Texas v. New Jersey, 379 U.S. 674 (1965), and were incorporated into the 1981 Act." The case tells us which state has priority to the abandoned or unclaimed funds held by a credit union:
- The state of the member's last known address as determined from the records of the credit union has first priority.
- The state of the credit union's principal place of business has second priority if the member's last known address cannot be determined from the credit union's records.
In general, your credit union will need to look toward the unclaimed property law of the state in which your member resided unless it cannot be determined from the credit union's records. And again, it is important to remember that unclaimed property law - even if it is based on a version of the uniform unclaimed property act - may differ from state to state. Local counsel can provide invaluable guidance about the specific peculiarities of the relevant state's unclaimed property law.
Register for our upcoming compliance webinars!
May 9: Using the FFIEC Guidelines and the ACAT to Drive Strategic Technology Planning
May 14: Website and Social Media Compliance
May 15: Regulatory Compliance Risk Awareness for Board/Supervisory Committee