Unclaimed Property Due Diligence – The Case For Doing More

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In most companies and financial institutions, unclaimed property compliance is treated as an ancillary operational responsibility unrelated to the “business” of the firm.  After all, as with many regulatory obligations, unclaimed property compliance is not a profit-generating activity.  That said, there is the possibility that paying prompt attention to certain unclaimed property law requirements (or, at least, unclaimed property concepts) can make good business sense and maybe even help the bottom line.

One place where increased attention can pay off is customer “due diligence.”  Unclaimed property holders are obligated to perform statutory “due diligence” before reporting and remitting property to the state.  In practice, this requirement usually means mailing the customer of unclaimed property a form letter a few weeks before turning the property over to the state.  Sure, a few states require specific language to be in the form letter, or for the letter to be sent via certified mail when the property is over a certain dollar amount.  But for the most part, it’s nothing more than a form letter in a corporate envelope, destined to be ignored, stuffed into a drawer, or perched precariously on the customer’s stack of mail to look at later.  In most states, the relevant statutory obligation looks like this:

The holder of property presumed abandoned shall send written notice to the apparent owner, not more than 120 days or less than 60 days before filing the report, stating that the holder is in possession of property subject to this [Act], if:

(1) the holder has in its records an address for the apparent owner which the  holder's records do not disclose to be inaccurate;

(2) the claim of the apparent owner is not barred by a statute of limitations; and

(3) the value of the property is $50 or more.

1995 Uniform Unclaimed Property Act at Section 7(e).

The intent here is laudable, and there are reasonable limitations.  Since most states’ unclaimed property laws have no de minimis threshold, it makes sense not to require holders to send letters to customers where the cost of postage and administration are more than the amount to be turned over.  Likewise, the fact that the mailing is sent close to the reporting deadline (usually after several years of inactivity) means that holders are only required to send letters to those owners who have been inactive for a significant period of time. 

However, there are a few reasons why these requirements are perhaps not the best way to make sure people reclaim their funds.  First, these communications are required to be sent via first-class mail.  The U.S. Postal Service delivers approximately 54 billion items of first-class mail per year.  (If my house is any indication, 90% of these are takeout menus).  In any event, people get a lot of mail and many people ignore most of it. 

Second, these mailings are generally sent three to five years after the transaction that gave rise to the property or the customer/counterparty’s last activity with the holder.  In that time, corporate owners may have moved, been bought or sold, or gone through significant personnel changes such that even if someone opens the letter, they won’t know what it is about (or might think it is a scam). 

Third, the unclaimed property due diligence requirement (unlike other regulatory requirements like SEC Rule 17Ad-17) don’t actually require the holder to try and find the owner.  In fact, if the holder knows that the owner is no longer at the address listed on the holder’s books and records, there generally is no due diligence requirement at all.

For these reasons, holders sometimes ask whether they are “allowed” to do more than the requirements set forth in the state’s due diligence statute.   The answer is a resounding yes.  Not only can a holder do more than send a form letter three to five years after a customer becomes inactive, but there is an argument that holders are well advised to do more.

For one thing, most of the people or companies who are the owners of unclaimed property held by a firm are that firm’s customers and counterparties.  Keeping in touch with them can keep your business in mind when purchase/transaction decisions are made.  For another, going above and beyond to remind owners that you are holding their money (that they may have forgotten about) shows that you are an honest steward of their funds.  Finally, letting customers know early that unused or unclaimed funds may ultimately have to be reported and remitted to the state can help avoid consumers angry that their funds have been escheated.

What to do?

Make contact early & often – You don’t have to wait three years before contacting a customer about an uncashed check or unused credit.  Reminding customers that they have money to spend with you, like other types of promotional incentives, may drive sales, possibly in excess of the amount of the credit.

Use points of contact – Most state due diligence statutes require the holder to send first-class mail.  But nothing prevents you from reaching out by phone, by email, through an app, or by other available means. 

Get others involved – Sometimes, an unclaimed property owner will have communications with a holder, but no record is made of the contact.  Make sure that processes are in place for customer calls, emails, and other inquires are leveraged to remind owners about unclaimed items.

Sending out required due diligence notices is an important part of unclaimed property law compliance.  That said, sending out due diligence letters may be seen as the floor, not the ceiling, of successful customer outreach.