Banking and Business Monthly – January 2018

A PRIMER on the NEW ILLINOIS REVISED UNIFORM UNCLAIMED PROPERTY ACT

During July 2017, the Illinois legislature overrode the Governor’s veto to enact Senate Bill 9, which repealed and replaced the Uniform Disposition of Unclaimed Property Act, 765 ILCS 1025/1 et seq., with the Revised Uniform Unclaimed Property Act (RUUPA), 765 ILCS 1026/15-101 et seq., effective January 1, 2018.  This is the first major revision of Illinois’ unclaimed property law since its adoption of the “1954 Uniform Unclaimed Property Act” in 1961.  Financial institutions, businesses and others who hold property covered by RUUPA should carefully review RUUPA and its provisions.  Below are some of the highlights.  Readers are encouraged to review RUUPA in detail.

1.         Shortened Abandonment Periods.

Many abandonment periods have been reduced in the RUUPA, typically from 5 years to 3 years. Some examples of that reduction include the following types of property:  deposit accounts, credits from retail transactions, municipal and state bonds, business debts, securities and property held by a court.  Note that not all abandonment periods were reduced.  RUUPA also changes the date from which the abandonment period begins to run for many types of property.

2.         Gift Cards vs. Stored-Value Cards.

Gift cards appear exempt from reporting but stored-value cards are not exempt.  Under RUUPA, a gift card generally means a record issued on a prepaid basis primarily for personal, family or household purposes to a consumer in a specified amount; the value of which does not expire; that is not subject to a dormancy, inactivity, or post-sale service fee; that is redeemable upon presentation for goods or services from the seller or issuer; and that may not be redeemed for or converted into money.  Stored-value cards, on the other hand, are issued on a prepaid basis primarily for personal, family, or household purposes to a consumer in a specified amount, whether or not that amount may be increased or reloaded in exchange for payment; and are redeemable upon presentation at multiple unaffiliated merchants for goods or services or usable at automated teller machines.  Compare 765 ILCS 1026/15-102(11) to 765 ILCS 1026/15-102(30).  This potentially means that only gift cards which do not expire, are not subject to fees and can be redeemed at only one merchant or its affiliates are excluded from reportable property.  Stored value cards operate under the presumption they become abandoned after 5 years.  765 ILCS 1026/15-206(a).

3.         Related Property.

Once a particular item of property is presumed abandoned, any other property right or interest accrued or accruing from the property and not previously presumed abandoned is also presumed abandoned.  Effectively, former holders of unclaimed property must report ongoing accruals of interest and dividends that are reported or remitted to them, even after the underlying unclaimed property has been submitted to the State Treasurer.

4.         No Business-to-Business Exemption. 

RUUPA no longer allows property owed by one business to another business to be exempt. With the elimination of this exemption, businesses will be required to begin reporting debts owed to other businesses as abandoned property after they become unpayable, and this includes intercompany debits and credits, also over- and under-payments.  765 ILCS 1026/15-102(24).

5.         Apparent Owners.

The definition of “apparent owner” was added to RUUPA and is defined as a “person whose name appears on the records of a holder as the owner of property held, issued, or owing by the holder.”  765 ILCS 1026/15-102(3).  The significance is that a holder of property will not be responsible for identifying owners of the property other than those listed in the holder’s records.

6.         Deceased Apparent Owners.

When an apparent owner has died, special rules apply which automatically shortens an abandonment period greater than 2 years to 2 years from the apparent owner’s last “indication of interest,” regardless of the property type, except for life insurance policies or annuity contracts which have their own rules.  This could potentially result in property being presumed abandoned as of the date of death without a grace period for a decedent’s personal representative to take action to prevent its delivery to the State Treasurer.  765 ILCS 1026/15-201.

7.         Due Diligence.

The timing requirements for statutory notice have been changed under RUUPA.  Prior law generally required notice to be sent, when the value of the property is $50 or more (or $1,000 or more for securities), 60 to 120 days before the holder’s reporting deadline.  Under the new law, notice must be sent between 60 to 365 days before the holder’s reporting deadline.  765 ILCS 1026/15-501.  Also, a holder is required to send a subsequent email to those who have consented to electronic mail, in addition to the prior first class or, for securities, certified mailing.

8.         Retroactive Reporting.

RUUPA has a transitional provision which will require holders to look back 5 years and report any “property that was not required to be reported before the effective date of this Act, but that is required to be reported under this Act.”  765 ILCS 1026/15-1503(a).  This may be a significant reporting burden for affected holders.

9.         Record Retention.

A holder who is obligated to file an unclaimed property report must retain records related to such report for 10 years after the report is filed.  765 ILCS 1026/15-404.  If there is a failure to maintain adequate records, the State Treasurer may charge the holder for unreported property using “a reasonable method of estimation” which could include extrapolation and use of statistical sampling.  765 ILCS 1026/15-1006.

10.       Statute of Limitations.

RUUPA places a ten-year statute of limitations for actions “in regard to the reporting, delivery, or payment of property.”  765 ILCS 1026/15-610(b).  However, the statute of limitations will not begin tolling until a report has been filed or Illinois has notice of a dispute to the property.

11.       Examinations.

RUUPA authorizes the State to conduct an unclaimed property examination of the records of any person for any reason, with no stated limitation on this authority.  765 ILCS 1026/15-1002.  Under prior law the State was required to show there was a “reasonable belief” that an exam was necessary.  However, the State will remain subject to the National Bank Act’s visitation standard for national banks, which requires “reasonable cause to believe that the bank has failed to comply” with the State’s unclaimed property law.  12 USC § 484(b).  The new law also allows the State Treasurer to hire third party vendors to conduct audits and the vendors may be compensated on a contingency basis.

12.       Penalties.

Stricter penalties are imposed under RUUPA.  Holders that fail to report, pay or deliver property must pay 1% interest per month, plus a civil penalty of $200 per day, up to a maximum civil penalty of $5,000.  765 ILCS 1026/15-1204.  If a holder is found to have purposefully evaded or willfully failed to perform its duties under the Act, or files a fraudulent report, the civil penalties may be increased to $1,000 per day, up to a maximum amount of $25,000, plus 25% of the amount or value of the property that should have been reported, paid, or delivered.  765 ILCS 1026/15-1205.

 

Steven A. Migala is a partner at Lavelle Law and possess over 20 years of providing excellent representation to banks, businesses and individuals in a variety of matters. He can be contacted at (847) 705-7555 and smigala@lavellelaw.com.