Commentary from Howard J. Swibel

  • Howard J. Swibel Howard J. Swibel

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Having participated in drafting two separate versions of the Uniform Unclaimed Property Act, fully 35 years apart, I see several facts and trends that deserve to be discussed. Ironically, these facts and trends have moved in opposite directions. What follows are my personal points of view that do not represent official pronouncements by the Uniform Law Commission, where I have served as an Illinois Commissioner for over 40 years.

 

States Have Increased Use of Technology

First, many state governments have developed impressive and sophisticated strategies to collect and distribute unclaimed property. Advancements in data collection and tabulation have taken hold, along with increased training and recruitment of the personnel who administer the state programs. State officials have acquired detailed working knowledge of a wide range of industries and business practices. That knowledge has enabled them to create the infrastructure and systems needed to assemble and digest large volumes of transactional data submitted to the states by business entities. At the same time, officials in many states have increasingly focused energy and resources to expand public access to the information needed for filing claims. As state officials have employed internet websites and other modern tools to aid citizens’ efforts to retrieve their property, state officials have, in many cases, intensified their efforts to achieve ever greater return rates of property to rightful owners, measured both in sheer numbers of citizens served, as well as total dollar amount of property returned. 

Of course, state practices do vary and the responsibility for administration of unclaimed property activities reside in different governmental hands. In some states, such as Illinois, the job has been transferred from one of the Governor’s Cabinet-level departments to the State Treasurer, who is a directly-elected office holder. The Illinois unclaimed property duties now receive heightened attention and the elected State Treasurer has truly taken ownership of the function.

The public has benefited handsomely, both through beefed-up enforcement and strengthened efforts to arm the public with information. Furthermore, specially trained investigators make extraordinary efforts to track down persons who are entitled to property held by the state. In case after case, the delivery of funds to rightful owners has resulted in meaningful quality of life enhancement. I expect the states to make ever greater strides in this regard.

Holders Advocate to Upend Unclaimed Property Regime

Sixty-four years of unclaimed property legislation and accompanying administrative enforcement have not been accepted by some marginal, but well-financed, opponents, who continue to advocate for upending the unclaimed property regime through a combination of attempted legislative reform and judicial dismantling. They attack unclaimed property enforcement as if it is a product of the New Deal social welfare protections or an unprincipled, if not unconstitutional, burden on free-wheeling business enterprise. Those opponents assert that unclaimed property is nothing more than a business tax in disguise, and accuse state officials of heavy-handed, abusive tactics designed to bolster state government finances on a stealth basis.

Alas, the opponents will fail in their efforts to turn back the clock to the days when big business could profit from organized efforts to play “finders keepers.” When the spotlight of public opinion shines on such practices as life insurance companies holding on to death benefits long after their insureds have died, big business ultimately yields to fundamental notions of fundamental fairness. The truth is that unjust enrichment is not an American value and ethical conduct by business organizations should be promoted and required.

The 2016 revision to the Uniform Unclaimed Property Act takes steps to address legitimate concerns expressed by the business community. While outsourcing audit and examination functions to expert third-parties is a well-accepted good government practice, safeguards should be in place to deter overly aggressive tactics. Transparency in relation to those third-party arrangements and meaningful opportunity to process complaints about allegedly unreasonable audit procedures are among the statutory reforms we promulgated.

B2B Exemptions Being Challenged

As with many Uniform Law Commission projects, the most recent effort to revise the Unclaimed Property Act faced the practical reality that state legislatures previously staked out positions on important issues. For example, the question arises as to whether property that is the subject of a transaction or relationship between two “business” entities should be subject to unclaimed property reporting. In other words, should unclaimed property duties be limited to situations in which an individual consumer is the purchaser of goods and services? Arguments have been advanced to the effect that large, well-advised business organizations should be free to negotiate their own business terms and should be able to immunize themselves from unclaimed property compliance with respect to their privately negotiated business arrangements.

The problem is where to draw the line. The fact is that many individual consumers own their own small businesses. Indeed, many operate as sole proprietors, without the benefit of trained personnel to assist in navigating all of the consequences of relocation, business name changes, etc. As a result, millions of individual citizens who don the hat of a small businessperson end up losing track of millions of dollars of unclaimed property. If those small business owners live in the fifteen states which exclude “business to business” transactions from unclaimed property coverage, then they are left to fend for themselves and frequently miss out on collecting monies rightfully owed to them. While we at the Uniform Law Commission did not endorse that legislative technique, we respect the fact that some states may not choose to change their position on this and other issues, especially where special interest carve-outs are embedded in legislation. Perhaps future discussion and debate will reduce the incidence of outliers, so that the predictability which stems from uniformity can be achieved.

On an encouraging note, most businesses recognize the importance of setting up a compliance apparatus with respect to unclaimed property. The benefits to the public are real and meaningful. Especially in a society with maximum mobility, where our fellow Americans change their addresses multiple times and sometimes fail to make sure that the businesses which serve them know about those address changes, the unclaimed property legal structure makes perfect sense. I expect the adoption of compliance programs to proliferate as awareness continues to grow.

By Howard J. Swibel, Saul Ewing Arnstein & Lehr LLP; Illinois Uniform Law Commissioner

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