Comments – Revised Uniform Unclaimed Property Act – Final ULC Annual Meeting Draft

The National Association of Unclaimed Property Administrators (NAUPA) is an association representing the unclaimed property programs of all 50 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands (and other international governmental entities). NAUPA has worked with the Uniform Law Commission (ULC) in drafting previous iterations of the Uniform Unclaimed Property Act, and was solicited by the ULC to assist in updating the most recent version of the statute, which was enacted in 1995. NAUPA is represented by two advisers on the drafting committee, and NAUPA has been actively involved in the drafting process since its initiation in 2013.

While NAUPA continues to have some differences with the final draft to be presented at the 2016 ULC Annual Meeting, we believe that the ULC has worked to place the needs of the consumer in a priority position while also addressing the issues of technology and regulatory changes in the financial industry as well as providing increased transparency and standardization.

We recognize, however that the good work of the drafting committee will need to stand up to potential amendments that would seek to erode those consumer protections. Given the time investment by committee members, most of these issues did receive a full vetting through the drafting process. While it is the responsibility of all members of the ULC to give the proposed uniform law full due diligence and consideration, NAUPA supports the overall work and direction of the committee, subject to review of the final comments and legislative notes.

NAUPA Strongly endorses the following ULC Drafting Committee Positions…

Maintaining the states’ ability to utilize private sector audit firms and compensate them on a “pay-for-performance” (contingency) basis. All state unclaimed property programs utilize private sector (contract) audit firms, and compensate them on a “pay-for-performance” or contingency basis. While some states complement this with internal staff, many states do not have staff auditors and rely completely on contract audit firms for compliance. States have found from a budgeting and cost perspective, paying contract auditors for their performance—rather than by the hour—is the most effective approach to their engagement. The drafting committee has supported the states’ continued utilization of contract auditors on a performance basis, while at the same time recommending extensive procedural and administrative guidelines relating to transparency, procurement, contract auditor oversight and administrative appeals. NAUPA has substantially agreed to such requirements, many of which are already in place in a number of states.

Maintaining the existing scope of application, including unclaimed property from “business-to-business” transactions. The 1995 Uniform Act is comprehensive in its application; it covers all types of holders, and all types of property. Certain holder groups however have advocated for the exemption of unclaimed property arising from “business-to-business” (“B2B”) transactions. In presenting its position to the ULC, NAUPA noted that such an exclusion would put thousands of small businesses (often sole proprietors) at risk of not receiving their unclaimed property. The ULC drafting committee has adopted this position which the states believe is in the interest of the consumer.

The ULC draft has held the line on other exemptions that would erode consumer protections. The ULC draft holds the line on many attempts to exclude certain types of unclaimed property from application. Every exclusion puts the consumer at more risk of not recovering his/her unclaimed property. Virtual currency is added as a new type of property that is covered. Foreign addressed property is still covered by the Act. NAUPA notes that the gift card (and merchandise credit) exclusions are bracketed in the draft, providing the state’s flexibility on this issue. NAUPA does not agree with the complete exclusion of loyalty cards and “game related digital content.”

Life Insurance and Notice of Death. Many life insurance companies have worked with NAUPA, state treasurers, state insurance commissioners, and regulatory bodies to return life insurance proceeds to beneficiaries. In fact, as a result of these actions, over $7.5 billion has been returned to beneficiaries or reported as unclaimed property where the insured has died and the beneficiaries had not previously received the benefits to which they were entitled. A significant group of life insurance companies are fighting this, insisting that proactive steps to find the beneficiary are not part of their business model. The efforts of these insurance companies must not overwhelm the basic consumer rights of the beneficiaries. To that end, the National Conference of Insurance Legislators (NCOIL) has developed a model law to take proactive steps to assist beneficiaries and the National Association of Insurance Commissioners (NAIC) is taking up the same issue. NAUPA appreciates their efforts and the ULC draft acknowledges and incorporates these efforts while at the same time supporting the right of state unclaimed property administrators to audit life insurance companies to identify property that may not have been properly escheated and permits use of the Social Security Death Master File to accomplish this. We applaud the ULC drafting committee’s stance in favor of the consumer.

Derivative Rights. Courts have long held that the states’ basis for assuming the custody of unclaimed property is derived from the owner’s right of entitlement. However, courts have also recognized that the rights of the owner and the state are not identical. It has been consistently acknowledged that conditions precedent that might be properly asserted against the owner in order to receive payment—such as the surrender of an instrument establishing ownership or timely asserting an interest in property—should not be similarly imposed upon the state. NAUPA appreciates the ULC overall position on this issue.

Issues of Concern

NAUPA respectfully brings to the attention of the ULC Commissioners, the following concerns:

ACH Transactions. In making a determination of owner interest, dividend reinvestment (DRIP) and crediting interest do not count as owner interest. NAUPA supports this but is concerned that automatic deposits and withdrawals do count as owner interest. This could adversely delay the abandonment period and subsequent return of property.

RPO Standard. While NAUPA reached a compromise with the holder community on this issue, an outstanding issue exists on treatment when no such mailings occur.

Payroll Cards. To the extent these create the imposition of dormancy fees NAUPA believes dormancy fees must be reasonably tied to costs, including in cases where the card has never been activated.

Estimation. Current language needs to be clarified so as to prevent a situation where the holder could discard records and report all property to the state of incorporation without penalty.

Audit Look-back Period. NAUPA requests further clarification on the look back period for an audit in cases where holders have intentionally not remitted to the states without being criminal fraud, including a review of applicable definitions.

National Association of Unclaimed Property Administrators A network of the National Association of State Treasurers

201 E Main Street ▪ Suite 540 ▪ Lexington, KY 40507 Tel: (859) 721-2182 ▪ Fax: (859) 721-2194 ▪ Email: naupa@statetreasurers.org ▪ Website: unclaimed.org