Unclaimed property issues are complex, but there are steps banks can take to help their customers maintain claims to their assets and keep their funds within the institution.
“Escheatment” is the legal term for the transfer of abandoned property to the state. Once a customer’s property is considered “abandoned” after a specific waiting period, state laws require that the bank turn over the asset to the state treasury department for safekeeping. Dormancy periods can be as short as one year, but vary by state or jurisdiction.
Banks can take four key actions that can reduce the risk that unnecessary escheatment could have on their customers’ accounts, and keep assets and deposits within the institution.
Institutions need to design processes and systems that can prevent unnecessary escheatment. Many banks lack the internal processes and technology solutions that would help minimize the risk of escheatment and often do not formalize their approach until faced with an audit, compounding an already-stressful situation.
Banks can create a culture of compliance by having policies and procedures for this process in place. They can also use technology to mitigate escheatment risk, lower the cost of the process and increase the efficiency of mitigation efforts.
However, many financial organizations lack robust systems to aid this process. For example, banks might allow certificates of deposit to be escheated because of inactivity, even though the CD owner has actively made deposits in or withdrawals from another account type. Linking customer accounts together allows the bank to assess contact activity across all holdings.
Banks can also educate their customers on the importance of maintaining accurate contact information and regular activity, which could prevent accounts from becoming dormant. Effective ways to help clients accomplish this include:
- Providing customers with educational information when they open an account—one of the best times to educate them.
- Adding messages on customer communications.
- Establishing online alerts if mail has been returned as undeliverable, prompting customers to update their address when they log into their accounts.
- Training bank employees about the risks of unnecessary escheatment so they are well-versed about unclaimed property compliance and can guide customers appropriately.
Banks should also proactively identify their customers who might be at risk for escheatment. All jurisdictions, except for Puerto Rico, have basic due diligence requirements that require banks to make a final attempt to contact owners of dormant accounts and uncashed checks towards the end of the dormancy period. But there are several steps that banks can take to identify customers at risk of escheatment ahead of the dormancy period:
- Monitor which accounts have been inactive for 12 to 18 months and note the relationship with these customers.
- Begin outreach campaigns early and allow sufficient time for communication, rather than waiting for the mandated due diligence process.
- Identify deceased customer accounts that appear to be inactive, which can happen when family members are not aware that the account needs to be transferred or overlook paperwork when settling an estate.
Banks should communicate early, often and effectively with at-risk customers well in advance of the due diligence escheatment process. This process generally occurs late in the dormancy period: accounts have often been dormant for three to five years, making it difficult to find and communicate with their owners.
The process typically involves a single mailing sent to the last address of the dormant account’s owner, in hopes that they will respond. Most jurisdictions do not require due diligence mailings if the address on the account has been deemed inaccurate.
Owners that do receive and open the due diligence mailing may miss the window to reactivate their account if they do not act immediately. Customers may also think these letters are potential scams because they do not perceive themselves to be inactive or lost.
Effective ways to communicate with at-risk customers include:
- Calling customers directly and explaining the situation before incurring the expense of a due diligence mailing
- Using colored envelopes and company logos in customer communications.
- Using direct mailings when time, budget, resources or the volume of accounts prevent telephone efforts.
Varying the communication techniques, changing the appearance of each mailing and customizing the specific details of the communication to the customer’s unique situation may also accelerate and increase the response rate. Proper documentation is critical–banks should retain all correspondence for control and audit purposes.
The key to preventing unnecessary escheatment is being proactive long before the state dormancy periods begin. These methods will help banks reduce the cost of compliance and retain assets and customers.