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UNCLAIMED PROPERTY FOCUS is a blog written by and for UPPO members, featuring diverse perspectives and insights from unclaimed property practitioners across the U.S. and Canada. We welcome your submissions to Unclaimed Property Focus. Please contact Tim Dressen via tim@uppo.org with any questions about submitting a blog post for consideration and refer to our editorial guidelines when writing your blog post. Disclaimer: Information and/or comments to this blog is not intended as a substitute for legal advice on compliance or reporting requirements.

 

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UPPO to Attend the ULC Annual Meeting this Weekend

Posted By Administration, Thursday, July 7, 2016

The Uniform Law Commission (ULC) is hosting its Annual Meeting, July 8 – 14 in Stowe, Vt. and the Uniform Unclaimed Property Act (UUPA) is anticipated to be reviewed and approved during the meeting. UPPO is sending two representatives, Kendall Houghton, co-chair of Government Relations & Advocacy Committee and Debbie Zumoff, co-chair of the UPPO ULC work group, to attend the meeting to listen to dialogue and discuss UPPO’s priority issues with commissioners.

 

On Friday, July 1, UPPO submitted its latest submission to the ULC which provided a list of issues UPPO believes needs additional consideration by the Committee to Revise the Uniform Unclaimed Property Act (Drafting Committee). Below is a glance at some of the issues and arguments presented in the submission. Read the complete submission.

 

Definitions
Definition of holder
Section 102(12)

The definition of holder should be clear and articulate that there can be only one holder of any item of unclaimed property. UPPO recommends the definition of holder be changed to the following: “’Holder’ means a  the person primarily obligated to hold for the account of, or to deliver or pay to, the owner property that is subject to this [act].”

 

Definition of security
Section 102(27)

The definition of security has been hotly debated during the Drafting Committee meetings by securities industry stakeholders, NAUPA, and UPPO. UPPO continues the push to achieve a fair and clear definition, and proposes that the definition of security be amended to: “’Security’ means a security or security entitlement as defined in [cite to appropriate sections of Article 8 of the Uniform Commercial Code] and includes a customer security account held by a registered broker-dealer. 

 

Indication of interest
Indication of apparent owner interest in property – divided reinvestments and non-return of federal tax forms
Section 210(b)(5) & 210(b)(8) NEW

The current draft UUPA takes strides to include modern and practical forms of communication between owners and holders to be considered as indication of interest. UPPO encourages the Drafting Committee to go further and include: automatic deposits, automatic reinvestments of dividends or interest, and the non-return of federal tax forms as indications of owner interest, as well.  Adding these types of owner interest is consistent with progressive legislation that was enacted by Louisiana in 2015 and is currently being considered by California.

 

Due diligence
Notice to Apparent Owner by Holder
Section 501(b)

The draft states that a holder is required to send the due diligence notice to owners who have consented to receive electronic communication by first-class United States mail and by electronic mail. UPPO seeks clarification that the requirement to send two communication pieces is the intention, further noting that requiring holders to contact the owner by one method is consistent with Section 503(b)(1) which grants the administrator the option to contact an owner by electronic mail or U.S. mail.

 

Audits
Complaint to Administrator about Conduct of Person Conducting Examination
Section 1008(b)

To ensure there’s enough time to prepare but not too much to unnecessarily extend the process, UPPO requests that a time frame between when a holder requests a conference with an administrator regarding an examination be changed to: “…the administrator shall hold the conference within a reasonable time 30 days after receiving the request.”


If you want to learn more about the ULC Annual Meeting and what was discussed, stay tuned for a follow-up blog post and register for the free, members-only webinar Revising the Uniform Unclaimed Property Act: Where do we go from here?, Monday, July 25; noon – 1 p.m. EDT.

 

More information
We’re halfway through the ULC’s effort to revise the UUPA

Tags:  advocacy  Annual Meeting  unclaimed property  Uniform Law Commission 

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The Derivative Rights Doctrine: A Primer

Posted By Administration, Thursday, November 5, 2015

When a state takes possession of unclaimed property, it does so as a custodian of that property, taking on the absentee owner’s role. The Derivative Rights Doctrine is the premise that the state’s rights are then equal to those of the owner. Acting on behalf of the owner, the state should have identical rights to the property that the owner would otherwise have.

 

Actions taken by the states regarding unclaimed property, however, often surpass what original property owners could do on their own. As a result, the Derivative Rights Doctrine has been a point of contention between the holder community and the states as the Uniform Law Commission (ULC) works on the Revised Uniform Unclaimed Property Act (RUUPA).

 

How does the Derivative Rights Doctrine apply to unclaimed property?

One of several areas where the Derivative Rights Doctrine applies is the use of gift cards. When a company issues a gift card, it has an obligation to provide goods or services to the bearer of the card. Someone possessing a $100 Target gift card is entitled to $100 worth of Target merchandise, for example. It does not, however, entitle the gift card owner to $100 in cash from Target. If that gift card is unused, and a state requires Target to escheat $100 in cash so it can return that cash to the owner, it exceeds the rights of the owner, who would not have the authority to claim that cash from Target directly.

 

“Target isn’t a bank,” says Ethan Millar, partner with Alston & Bird LLP and American Bar Association (ABA) advisor to the ULC Drafting Committee to Revise the Uniform Unclaimed Property Act (drafting committee). “It isn’t holding cash for the owner of the gift card. The money belongs to Target. It shouldn’t have to pay that money to the state as unclaimed property. By requiring that, the state interferes with the contractual arrangement between the owner and Target, and converts an obligation to provide merchandise into an obligation to pay money”

 

Similar examples where the Derivative Rights Doctrine applies are movie tickets, prepaid spa packages and prepaid personal training sessions—anything where someone pays money in advance for a service that isn’t rendered or a good that isn’t delivered. Typically, either contractual terms or a legal statute of limitations dictates how long an owner has the ability to claim the purchased goods or services. State unclaimed property laws, however, are increasingly overriding these terms.

 

“Unclaimed property laws in many states have adopted contractual anti-limitations provisions,” Millar says. “These provisions attempt to nullify contractual limitations, such as expiration dates, regardless of the circumstances. However, there are already consumer protection laws that govern the validity of contractual limitations provisions. Thus, if businesses are exploiting someone, consumer protection laws already provide protection. The unclaimed property laws ignore this and seek to eliminate contractual restrictions regardless of what was agreed to and regardless of what is legally permissible under the consumer protection laws, effectively overriding these other laws.”

 

A personal trainer may offer a promotional package of 10 prepaid sessions for $500 to be used within six months. If at the end of that time, the purchaser has used only seven sessions, both parties understand that the contractually agreed upon time period has run its course. Under the Derivative Rights Doctrine, the three unused sessions would not be considered unclaimed property. The obligation expired, so the owner is entitled to no compensation. If unclaimed property laws require the business to escheat the value of those unused sessions, it is overstepping the original contract and giving the owner something not covered under the agreement.

 

The Derivative Rights Doctrine also applies when considering which party has the legal burden of proving a debt exists. Debtor/creditor laws say the burden of proof falls on the creditor—in the case of unclaimed property, the owner. Under the Derivative Rights Doctrine, the states should also have the burden when acting on behalf of unclaimed property owners. However, according to Millar, the states argue that the mere existence of a credit on a company’s accounting records shifts the burden to the holder to disprove that the credit represents unclaimed property. A creditor/owner doesn’t have the right to shift the burden of proof by simply pointing to the accounting records of a debtor/holder, so neither should the states under the concept of derivative rights.

 

Derivative Rights Doctrine in ULC drafting committee discussions

Though other holder groups, including UPPO, have supported the Derivative Rights Doctrine through written and verbal commentary to the drafting committee, the ABA is the leader in the push to include the Derivative Rights Doctrine in the RUUPA. In comments to the ULC, the ABA requests that the RUUPA incorporate the Derivative Rights Doctrine to ensure states truly represent unclaimed property owners but do not receive additional property rights.

 

“The purpose of the UUPA is simply to return unclaimed property to the rightful owner and not be used as a ‘back door’ to impose additional substantive regulations that may impact the debtor’s obligations to a creditor,” ABA writes.

 

NAUPA takes issue in its comments to the drafting committee with the premise that states’ rights should be identical to those of the unclaimed property owners they are representing. NAUPA also warns that making states’ unclaimed property rights equal to those of owners would spell the end of meaningful unclaimed property laws.

 

“Because a holder can easily invent some business purpose for any restriction on its obligation to the owners, surely all would do so,” NAUPA writes. “Any holder issuing a payment instrument or credit of any form—check, rebate, refund, traveler check, money order, stored value card, credit balance—would require that the instrument or credit be cashed or used within a time period fixed so that the holder can confiscate the funds.”

 

The ULC is seeking a balance between the opposing views, as gaining support from both sides is essential to the RUUPA’s adoption. Support from states and holders will likely play a significant factor in whether lawmakers ultimately embrace the revised act. Both have the ability to put pressure on lawmakers, so the ULC faces the difficult task of trying to draft an act that both sides will support and achieve the ultimate goal – uniformity.

 

The most recent RUUPA draft addresses the Derivative Rights Doctrine in its discussion of gift cards, but not other key issues, such as statutes of limitation, contractual limitations and burden of proof. The drafting committee continues to work on its next draft, which will likely be completed before its March 2016 meeting.

 

More Resources

Debrief of UPPO’s ULC Issues Refinement Submission

UPPO’s Advocacy page

 

Tags:  ABA  Derivative Rights Doctrine  NAUPA  reform  revised uniform unclaimed property act  RUUPA  ULC  unclaimed property  Uniform Law Commission 

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We’re halfway through the ULC’s effort to revise the UUPA!

Posted By Administration, Thursday, July 30, 2015
Updated: Wednesday, July 29, 2015

We’re halfway through the Uniform Law Commission’s (ULC) effort to revise the Uniform Unclaimed Property Act! As we move into the next phase of the process, we want to share how the Revised Uniform Unclaimed Property Act (RUUPA) draft addresses UPPO’s top 5 advocacy issues, as determined by members through the advocacy survey conducted in summer 2013. UPPO work groups were formed around those priorities, to research and draft position statements on each issue.  Now, we want your input to identify the issues on which UPPO should continue to focus its advocacy efforts, before the RUUPA draft becomes final. Take the survey to share your thoughts.

Though we are only half-way, UPPO believes the current RUUPA draft reflects the ULC’s desire to produce a final product that infuses fairness, modernization, and clarity that is recognizable by all stakeholders. We understand there is still work to be done, and therefore will remain engaged through continued verbal and written commentary, attendance at relevant ULC meetings, and collaboration with other stakeholders.

Status of UPPO’s Top 5 advocacy issues


Priority 1: Due diligence timelines

To minimize the complexity facing holders, the RUUPA currently says* owner notification needs to be completed not less than 60 days before filing the report. This lends flexibility to holders to complete due diligence on their own timeline rather than be locked into a specific time period.  This timing was suggested by UPPO in its position statement which was initially drafted by one of UPPO’s work groups.


*To ensure Section 8(f) and (h)(2)(B) are consistent with Section 10 and what the ULC drafting committee agreed upon during the February 2015 meeting, the language regarding the due diligence timeframe needs to be altered to read “…not less than 60 days before filing a report”. UPPO believes this is a drafting oversight that will be corrected once it’s brought to the attention of the reporter. 

Priority 2: Record retention requirements

Section 21 of the RUUPA provides for a standard record retention period of 10 years, and lists the information required to be kept on file by the holder. The information holders must keep for 10 years is:

  • The date, place, and nature of the circumstances which give rise to the property right;
  • The amount or value of the property; and,
  • The last known address of the owner, if known to the holder. 

UPPO recommended the record retention requirement be seven years, and that holder records must be retrievable in case of an audit.

 


Priority 3: Electronic owner contact

One of UPPO’s primary messages and goals in its comments to the ULC was that the RUUPA needs to be modernized to include the technology that drives modern commercial transactions – including electronic owner contact and recurring ACH transactions. The RUUPA draft includes the following types of electronic owner contact:

  • Electronic communication by the owner to the holder or agent of the holder,
  • Electronic payment of a dividend, interest, or other distribution,

  • Owner-directed activity in the account (including accessing the account, increasing, decreasing, or change the amount in of property in the account) as acceptable forms of an owner’s interest in the property. 

Priority 4: Definition of owner contact

The current version of the RUUPA includes an expanded list of activities that are acceptable forms of owner contact, most of which were proposed by UPPO, but UPPO continues to advocate that the ULC drafting committee include automatic deposits and withdrawals as well.  Below is the list of activities that are included in the RUUPA as acceptable forms of contact:

  • Written communication (this includes electronic communication);

  • Oral communication (if the holder makes and preserves a record of the conversation);

  • Presentment of payment (check, electronic, or other instrument of payment) of a dividend, interest payment or other distribution;

  • Owner-directed activity in the account in which the property is held;

  • Making a deposit or withdrawal from an account in which the property is held*;

  • Payment of a premium with respect to an interest in an insurance policy;

  • Any action by an agent or other representative of an owner is presumed to have been done on behalf of the owner, and is considered an action by the owner.

*In addition, UPPO believes removing the brackets** placed around automatic withdrawals and deposits* in the current RUUPA draft (which means that this type of action may be excluded from the list of owner contact in the state adoption process) will better protect owners’ interests and align itself with how owners remain in touch with many of their property accounts.

 

**Brackets indicate that it’s an optional provision, and the adopting state can decide to include the provision in the adopted act.

 


Priority 5: Jurisdictional reporting deadlines

The RUUPA creates a standard reporting deadline for all non-life insurance holders of Nov. 1, and May 1 for insurance companies. 

 

As UPPO advocated, the RUUPA includes a provision which allows for elective early reporting by holders. The RUUPA specifically provides, if the holder has not succeeded in notifying the apparent owner of the property, the provision allows holders to voluntarily report and remit property that hasn’t yet been presumed abandoned. When the property is delivered to the state, the property will then be considered abandoned.

 

Questions about UPPO's advocacy strategy or how we are staying involved? Contact UPPO President Dana Terry.

 

More information

Register for this free, members-only webinar ULC Update Webinar, Aug. 18; 2 - 3 p.m. EST!

Tags:  advocacy  reform  RUUPA  unclaimed property  Uniform law commission  uniform unclaimed property act  UUPA 

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UPPO is heading to the ULC Annual Meeting & reviews RUUPA

Posted By Administration, Monday, June 29, 2015
Updated: Friday, June 26, 2015

Since the February 2015 Uniform Law Commission (ULC) Drafting Committee to Revise the Uniform Unclaimed Property Act (drafting committee) meeting, UPPO has kept busy preparing for the second  Revised Uniform Unclaimed Property Act (RUUPA) draft release and its consideration at the ULC Annual Meeting on July 14; Williamsburg, Va.

In preparation for the upcoming meeting, UPPO has thoroughly reviewed the RUUPA to analyze the areas that will be embraced by UPPO members and those that still need work. Here’s the analysis:

Overall opinion
The second draft of the RUUPA embraces change, fairness, modernization, and clarity and incorporates many of the positions UPPO and various industry-specific stakeholders have been advocating from the beginning. “UPPO is pleased with the work that has been done by the ULC drafting committee to support fairness for all stakeholders, and the willingness of the reporter and co-chairs to embrace significant change,” says Dana Terry, UPPO president. Though there are many positive developments for the holder community, UPPO will remain fully engaged in the process to ensure the areas of concern can be improved, and the RUUPA is an act that the holder community encourages state legislatures to adopt in full.

Highlights of the provisions that UPPO supports


Specific definitions that promote clarity – Section 2

  • Address: The definition of address currently included in the RUUPA is practical and two-fold. The first part identifies that there may be an address that is separate than priority and can be used to direct mail to. The second part identifies which state is able to make claim and establish priority of the property.
  • Securities-related property has been defined by like characteristics including: restricted securities, non-freely transferable securities, and worthless securities.

Holder due diligence to the owner - Section 10
Though there are some consistency issues with this language in other areas of the RUUPA that need to be fixed, currently the required timing of the due diligence notice is drafted as “not less than 60 days before filing the report”. In addition, due diligence letters don’t need to be sent if the amount of the property is less than $50 and the address is known to be incorrect. The RUUPA also provides general language to include in a due diligence letter. 

 

Record retention – Sections 19(c) and 21(a)
The record retention requirement and statute of repose are capped at 10 years.


Encouraging transparent audit practices – Section 20

Section 20 still has provisions that UPPO would like to see fleshed out in greater detail and/or altered but there are many positive inclusions within the RUUPA that encourage transparency and fairness within the audit environment, such as:

  • Requiring state administrators to make third-party auditor contracts public
  • A  provision that requires state administrators ensure that conducting audits internally isn’t economically feasible
  • Requiring administrators to produce audit income reports annually to individuals overseeing the program

Highlights of the areas that need further consideration

Derivative Rights Doctrine – Sections 2(22)(a)(ii), 3(g), 19(a)
UPPO considers the Derivative Rights Doctrine to be a critical component of these laws and urges the ULC to formally recognize the Derivative Rights Doctrine as a very real limitation on the extent of states’ legal authority. 


Business to Business Transactions – Section 3(c)

Currently, there are two alternatives that exempt B2B property. Alternative A is narrower only exempting property that is generated through the normal course of business. Whereas, Alternative B is broader, exempting all B2B property regardless of when the property was generated. UPPO supports the inclusion of Alternative B in the RUUPA.


Indication of Owner’s Interest (Contact) - Section 3(e)(i - viii)

UPPO supports a comprehensive list of activities that constitute indications of interest by an owner.  Additionally, UPPO would support affirmative inclusion of the provisions concerning automatic transactions without brackets.


Administrative Appeals – Section 22
Holders deserve an unbiased arbiter to whom they can present their disagreements with audit results, as an alternative to formal litigation. Alternatives A and B presented in the RUUPA do not remove the state administrator as the decision-maker in this process. An administrative appeals process overseen by a truly independent decision-maker (i.e., not selected by or accountable to the state administrator) is essential to a fair and balanced result. UPPO advocates reconsideration of including the two alternatives provided.

 

Foreign Transactions/Property - Section 26 and Section 23 Comment
UPPO urges the ULC to remove the brackets from Section 26 and to exclude all foreign address property from the RUUPA as supported by principles of comity and the Supremacy Clause, the Due Process Clause, and the Foreign Commerce Clause of the U.S. Constitution.  UPPO further urges the ULC to restore the prior phrasing of Section 26 which did not premise such exclusion on the foreign country or non-US location having “laws which entitle it to take and hold unclaimed property of its citizens” – this condition essentially renders most foreign property subject to states’ claims, as the reporter’s Comment to Section 23 acknowledges. Hence, the Comment to Section 23 should be revised to ensure consistency with Section 26 as revised.

 

More information

Check out UPPO’s advocacy page to view the past submissions to the ULC

Tags:  compliance  draft  reform  revised uniform unclaimed property act  ULC  unclaimed property  Uniform Law Commission  UPPO 

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ULC meeting shows progress, but there’s more work to be done

Posted By Administration, Monday, March 30, 2015

The Uniform Law Commission (ULC) drafting committee to revise the Uniform Unclaimed Property Act (drafting committee) met in Washington D.C. Feb. 27 – 28 to discuss the latest version of the revised Uniform Unclaimed Property Act (RUUPA) draft.

UPPO left the meeting feeling that progress was made, but additional dialogue on critical issues broadly impacting the holder community such as the activities constituting contact, the definition of holder, and administrative appeals, need further clarity and consideration.

Issues impacting the securities industry are among those that require focused attention in the current RUUPA. Seeing the need for additional dialogue and compromise between stakeholders, the drafting committee co-chairs requested specific stakeholder groups to meet before the next drafting committee meeting to discuss various securities-related issues. Representatives from UPPO, the National Association of Unclaimed Property Administrators (NAUPA), and specific securities industry groups have been invited to attend this meeting, set to happen in mid-April. UPPO looks forward to the opportunity to converse directly with NAUPA and the drafting committee reporter on the intricacies and regulations of the securities industry that need to be considered in the RUUPA to ensure the final version is modernized, fair, and clear of ambiguities. 

Inclusions in the current RUUPA draft that positively impact holders:
Please note, that the RUUPA is not finalized and the content currently included or left out of the draft can change. 

Revised definition of address
The revised definition of address is two-fold. For the purpose of giving notice by mail to an apparent owner, the location of the apparent owner must be sufficient to direct the delivery of mail. For the purpose of determining first priority reporting jurisdiction of property held for an owner, the definition includes any description code, or indication of the location of the apparent owner, regardless of whether it is sufficient to direct the delivery of mail to the apparent owner.

Foreign address property
The draft includes a section that explicitly says it does not apply to property held, due, and owing to a person whose last known address is in a foreign country or to property arising out of a foreign transaction where the property is held in a foreign country or location.

Audits
Lack of audit regulations has been a serious issue for the holder community, and it’s positive to see the willingness of the drafting committee to codify guidelines that will prevent abuse and encourage transparency. New additions related to audits include:

  • The requirement of third-party audit contracts to be reviewed by the appropriate channels within a state government prior to awarding contracts.
  • A standard preventing state employees involved in unclaimed property to become employed by a third-party audit company for a specific amount of time following employment by a state government.
  • A requirement of the state unclaimed property program to provide annual audit results to state executive and legislative officials
  • Authorization for state governments to award contracts to third-party auditors which is based on a fixed fee, hourly fee, or contingent fee (if contingent fee contract is awarded, the state must define the percentage allowed)

The ULC reform process is a slow, deliberate process intended to give all stakeholders the opportunity to provide verbal and/or written feedback. The opportunity for UPPO to influence issues still exists and we will continue to represent the holder community by advocating for modernization, clarity, and fairness in the RUUPA.

If you have questions or comments regarding UPPO’s advocacy efforts contact UPPO Executive Director Toni Nuernberg.

Tags:  advocacy  revise  unclaimed property  Uniform Law Commission  Uniform Unclaimed Property Act 

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