Corporate Close Up: Unclaimed Property Law Update: Initiative Mulls Treatment of Gift Cards, Securities

The Uniform Law Commission’s (ULC) Drafting Committee debated the treatment of unredeemed gift cards and tried to reach consensus over defining “holder” for purposes of securities, at the  Feb. 27th and 28th meeting in Washington, D.C. 

The ULC put out the most recent version of UUPA in 1995. The committee debated several important issues. As the ULC continued its effort to redraft the Uniform Unclaimed Property Act (UUPA), representatives of unclaimed property administrators and industry groups tried to find common ground on a variety of topics for the new version of UUPA.

An important topic of debate on the first day of the meeting was how to address gift cards and their potential for escheat to the state. Ethan Millar, a partner with Alston & Bird LLP and the chair of the Unclaimed Property and State and Local Tax subcommittees of the Business Law Section of the American Bar Association (ABA), voiced concern that the definition in the newly drafted language was overly broad and might inadvertently pull in other kinds of prepaid property, such as virtual currency and movie or concert tickets.

Further on the subject, the National Retail Federation (NRF) opined that gift cards, certificates, and stored value cards should be entirely excluded from escheatable property. Many gift cards do not have expiration dates and many states have statutes that prohibit the expiration of such devices. The NRF noted that their members are trying to maintain a relationship with their customers, and do not turn customers away who wish to redeem their gift cards no matter how long it has been since they were issued.

Another significant issue under discussion by the ULC on the first day was the treatment of life insurance under unclaimed property law. Of concern is when the dormancy period required to pass before life insurance proceeds are deemed abandoned should begin. Also under consideration is whether insurance providers should have to access the Social Security Administration’s Death Master File (DMF) for purposes of speeding up the process of reporting unclaimed proceeds from life insurance policies. Representatives of the life insurance industry stated that any requirements to search the DMF should be enacted under state insurance law rather than included in unclaimed property, and that insurers should not be required to search the DMF and use it as conclusive proof of death under life insurance policies.

The second day of drafting debate brought discussion concerning the definition of a “holder” of unclaimed property, especially as it related to securities. Of concern were situations in which a customer invested in a security through a broker, but the broker does not have the property in their name. The definition of a holder matters because it determines with whom the customer has to keep in contact to avoid leaving the property as abandoned under unclaimed property law.

Also under discussion on the second day was the use of third party firms in audit examinations by state unclaimed property administrators to determine whether corporations had unclaimed property that went unreported. Notably, the committee discussed language describing the need for a competitive procurement process for the selection of these third party firms, and whether such language may be preempted by state law already in existence dictating the process for private entities securing state government contracts.

The Committee covered a wide range of further topics as well in going over their first draft of the new version of UUPA. They plan to submit their draft at the 2015 Annual Meeting of the ULC to be held in Williamsburg, Virginia in July. The new version of UUPA is intended to update unclaimed property law to keep up with recent developments in the field, and the ULC hopes to have a final version complete and ready for implementation in the summer of 2016.

The redlined version of the draft of UUPA compared to the 1995 version discussed by the Committee can be found here:

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