Unclaimed money -- banks absorb it; states want it

By , Special to The Christian Science Monitor

"We did have a savings account for you," the bank wrote a St. Cloud, Minn., customer in 1978. "This account was closed in November of 1966, at which time the balance was $16.34."

The bank explained it was permitted to charge a "maintenance fee" if it lost contact with a customer and its statements were returned.

"It would appear the service charge absorbed all of the remaining balance, which closed the account." The letter blithely concluded, "Sincerely yours."

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Instead of accumulating interest for the long-missing depositor, the account had simply melted into the bank's own funds.

For 1979, Massachusetts alone estimated at $2 million to $3 million the unclaimed property in that state wiped out by bank service charges.

an amazing number of Americans seem to have either forgotten some of their assets or neglected to record them for distribution at time of death. About half of the funds are estimated to be in banks, but huge amounts are also held by other financial institutions, insurance companies, brokerage houses, and utilities -- even department stores and race tracks.

When California sued the giant Bank of America, state Controller Ken Cory reviewed the bank's reports and found his own name on the list of "missing" depositors, along with names of actress Lucille Ball, comedian Bob Hope, and former Gov. Edmund G. Brown Sr.

The suit resulted in a court order for the bank to return to its customers an estimated $20 million in service charges, unpaid interest, and penalties.

States are moving toward improved monitoring of abandoned property laws, under which unclaimed property reverts (escheats) to the state after a dormancy period.Required advertising of names in local newspapers before state takeovers has brought pleasant financial surprises to thousands of individuals who had forgotten their own assets.

Minnesota, which is engaged in a vigorous "missing owners" program, prides itself on the number tracked down.

"In fiscal year 1979 we identified owners of $5 million," said unclaimed property administrator Jim Lord. "We have just identified another $2 million this year. We have already returned 94.6 percent of this money."

The escheat principle dates back to fuedal times when land reverted to the manor in the absence of legal heirs. Nearly all the states have statutes requiring disclosure before takeover of abandoned property, but they are widely ignored. A conflicting US Supreme Court decision added complicating technicalities.

Enter two consumer-oriented groups dedicated to fairness and good order.

The Uniform Law Commissioners (ULC), unpaid appointees of state governors trying to solve common legal problems, had much earlier devised an unclaimed property act now on the books in 31 states. New amendments drafted by a committee headed by attorney Howard T. Rosen of Newark, N.J., will be considered by the ULC annual meeting in Hawaii July 26 to Aug. 1. After receiving guidance from the gathering of 250 lawyers, judges, and professors, the committee will have another go at perfecting its product for resubmission next year.

On adoption of the final text, the commissioners will work for its enactment in their own states.

The Uniform Unclaimed Property Act, says Mr. Rosen, "does not transfer ownership to the state but simply transfers custody until the true owner can be located. It is also designed to provide the states with a source of revenue by permitting them to have the use of the unclaimed money or property until it is claimed by the true owner."

In Washington the House Subcommitte on Commerce, Consumer, and Monetary Affairs on July 23 and 24 heard a string of "horror stories" about banking practices and complaints that federal banking authorities seem vastly indifferent to the situation.

David J. Epstein, a Los Angeles attorney and a consultant to several states on unclaimed property matters, said new audit information shows banks are now holding some $443 million in funds which really belonmg to their customers.

He said audits of other businesses such as insurance companies, department stores, and major corporations suggest that estimates of $15 billion in unclaimed property, growing at the rate of $1 billion year, may be accurate.

Subcommittee chairman Benjamin S. Rosenthal (D) of New York, after a 40 -minute grilling of two top federal officials, said, "I want this matter fully and fairly resolved by the end of this year."

Late last year the subcommittee asked all the states for specifics on how their laws are being carried out.

Massachusetts, which recently amended its law, told the subcommittee that "field audits . . . [of financial institutions] have dramatically increased the amounts . . . reported." Discussing examination of six mutual funds, it added: "Once access to these institutions was gained, the amounts involved were staggering." Three remitted more than $225,000.

Some $6 million was turned over to the state in 1979. Earlier, auditors negotiated settlements of $125,000 with Filene's department store and $440,000 with the Shawmut Bank of Boston.

Politicians around the country are eyeing this undreamed-of source of income available to starving state treasuries without any increase in taxes.

New York reported revenues of more than $126 million in fiscal year 1976-77, when the period allowed for dormancy was reduced from 10 years to five.

Some states have tried unsuccesfully to pry out billions of dollars worth of unclaimed income tax refunds and other moneys held by the US Treasury. Property in the hands of the federal government is not reached in the uniform act.

The Rosen committee suggests a five-year dormancy period, strict reporting requirements for property holders with heavy penalties for noncompliance, and specific newspaper advertising obligations on state administrators. Banks would no longer be free to wipe out accounts with service charges.

The draft provides for state examination of a holder's records and -- to save expense -- allows states to join in lawsuits in whatever court has jurisdiction over a particular property holder.

The American Banking Association's Office of the Legislative Counsel still views several parts of the draft as unsatisfactory. That office has organized a task force to consider not only the ULC product but all unclaimed property legislation enacted during the last few years, a spokesman said.

"The task force will look at operational as well as legal implications of the draft and plans to submit recommendations to the Rosen committee," he explained.

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