KeaneUnclaimed Property Banking and Unclaimed Property

Preparing to load PDF file. please wait...

0 of 0
KeaneUnclaimed Property Banking and Unclaimed Property

Transcript Of KeaneUnclaimed Property Banking and Unclaimed Property

Banking & Unclaimed Property
Best Practices to Help Banks: • Retain Assets • Minimize Escheat • Retain Customer Relationships

In the banking world, unclaimed property compliance can often take a backseat to other critical issues; however, it is no less significant considering its potential effects on customer retention, reputation management, and the business of growing assets.
Customer relationships are the bedrock for banking success, but if assets that consumers have entrusted to your bank are escheated to the state, those relationships could be in jeopardy — or worse, terminated altogether. Every year, millions of dollars in banking assets are escheated. Banks are left with the burden of attempting to resolve issues from irate customers and deal with the potential of lost revenue. With compliance laws constantly changing and varying from state to state, it is important to not only understand unclaimed property issues at a fundamental level, but also the steps you can take to reduce the risk of escheatment and increase the retention of customer relationships and assets.
The Challenge of Dormant Bank Accounts
At the most basic level, unclaimed property is any financial obligation that is due and owing to another party (customer, vendor, employee, investor, etc.) that has not been claimed by the owner after a specified period of time. While there are more than 100 types of unclaimed property, the most common examples relative to banks include savings accounts, checking accounts, certificates of deposit, property held in escrow or the trust department, and the contents of safe deposit boxes. Another common source of reportable funds is property that banks acquire when they merge with, or purchase, another bank. These acquisitions may hit the acquiring bank with an unknown unclaimed property liability which can result in late property, assets due for immediate remittance, and fines or penalties.
All of these accounts are “at risk” of becoming unclaimed property when they are deemed “dormant.” Dormant status occurs primarily when there has been no “owner-generated” activity on the account for a specified period of time called the “dormancy period.” A second key dormancy trigger is if physical mail sent to a customer is returned from the post office as “undeliverable.” A third trigger, which is pertinent specifically to banks, is when customers fail to pay the applicable fees for the maintenance of their safe deposit box.

In all of these circumstances, if the account owner does not take action during the dormancy period, the account must be reported and remitted — or “escheated” — to the state of the owner’s last known address. Generally speaking, dormancy periods for banking property range between 3 and 5 years.
With 55 reporting jurisdictions, including the District of Columbia, Puerto Rico, the U.S. Virgin Islands, the Mariana Islands, and Guam (and no two jurisdictions sharing the exact same laws) knowing how to report correctly and remain in full compliance is a challenge for all banks and other business entities.
Banks utilizing Keane’s best practices can reduce the amount of escheat risk by up to 90% each year. This success translates directly into increased revenue and cost savings.
Regardless of the type of account or property that is at risk of being escheated, Keane’s customized programs help clients:
• L ocate lost customers & reactivate dormant accounts
• Retain more assets under management
• Reduce expenses related to location and reporting
• Review sufficiency of existing policies and procedures
• Manage risk and implement compliance solutions
• Reduce non-compliance penalties & interest payments

Banking Case Study:
Keane’s program “thrills” major banking client by reactivating and retaining dormant customer accounts.

The power of outsourcing is perhaps best illustrated by a case study of a major U.S. banking client who engaged Keane to manage its customer location and outreach. Every 6 months, the bank begins its internal process of evaluating the volume of dormant accounts that is eligible to escheat in the following spring or fall compliance cycle. As a result of this process, in the spring cycle, it identified more than $12 million in dormant checking accounts, savings accounts, and certificates of deposit that were at risk.
Keane’s program is designed to locate new addresses for dormant account owners and then conduct an outbound communication campaign to protect as many accounts as possible. Unfortunately, the bank’s internal processes were unable to identify accounts in the early stages of dormancy, which prevented Keane from receiving the necessary information until only 7 months prior to the escheat deadline. Accordingly, Keane developed a customized process to rapidly research the accounts within the available timeframe until the process could be improved.
Despite the timing challenges, Keane’s program was — and continues to be — tremendously effective. In just 5 months, Keane was successful in helping the bank reconnect with 65% of its dormant customers, allowing them to retain 86% of the asset value.
The bank’s executives are thrilled with the program. Aside from the dollar volume, these figures represent a large-scale customer service coup, which ultimately enhances the bank’s reputation and facilitates revenue growth.

Client wanted to prevent $12 million in customer accounts from escheating to the states.
Keane implemented an Owner Location and Communication Program to help the bank reconnect with account owners.
Within only 5 months Keane reconnected with 65% of at-risk account owners.
More than
of Escheatable Property was

Why Bank Customers Need Help
Despite the pervasive nature of unclaimed property laws, most Americans are unfamiliar with the concept and the simple reality that banks are legally required to turn accounts over to the states if account owners are “inactive” — until, of course, it happens to them. And it will happen.
According to the National Association of Unclaimed Property Administrators (NAUPA), anually over $7 billion in unclaimed property is collected by state governments nationwide. To further illustrate the point, according to national news reports, some states report as many as 1 in 7 residents has unclaimed property of some kind.
In most jurisdictions inactive property can be reported to the state in just 3 years.
The reasons why these circumstances exist are numerous, but easily understood. Most consumers do not keep track of all of their accounts on a regular basis and do not update their personal account information when necessary — for instance, with a change of name or mailing address.
Quite logically, many customers assume that once their assets have been entrusted to a bank, their money is safe. For many, these accounts are out of sight and out of mind, safely guarded until they decide to make a withdrawal or access their safe deposit box.
Unfortunately, the proverbial “rainy day” approach can be costly in today’s world. Unless there has been activity on their account, the owner may be in for a surprise, since, in most jurisdictions, their property can be reported to the state within 3 years. Even consumers who silently track and monitor their accounts may not technically be “active” in the eyes of the applicable state’s laws. For example, in some cases, even a telephone conversation with a bank employee about the account may not qualify as activity.

The lack of consumer awareness coupled with a narrowing window of dormancy periods creates the perfect storm for unclaimed property problems that can endanger valuable customer relationships.
The unfortunate reality is that after investing hundreds of dollars to acquire just one new customer, banks silently lose thousands of accounts each year by complying with unclaimed property rules. While the ultimate “blame” can be placed on the customer for not keeping their account active, very few will point the finger at themselves. Rather, the customer will unfairly blame the bank. But, as the saying goes, perception is reality — and it can wreak havoc on a bank’s reputation.
Banks Must Focus on Owner Activity
There is variation in terms of how states define the triggering event for when an account is considered dormant and when it is reportable as unclaimed. Generalizing across all property types, the basic categories are:
1. Lack of owner activity
2. Undeliverable mail
3. A combination of the two
For bank accounts, inactivity is the dominant criteria.
There are many things consumers can do to keep their accounts from becoming inactive. Specific examples of account activity are:
• Direction or action by the owner to increase, decrease, or change the amount or type of assets held in the account (i.e. depositing or withdrawing money from an account)
• Owner “log-ins” to online accounts
• Written communication between the owner and the bank
• A n indication of interest in the property as evidenced by a memo or other record on file
• Payment of safe deposit box fees
Conversely, and very troubling for older customers in particular, is the list of events or activities that do NOT constitute activity from an unclaimed property perspective.

Specifically, that list includes:
• The generation of or automatic reinvestment of interest
• Telephone conversations that have not been properly documented between the owner and the bank
• In-person bank visits (unless one of the activities from the proper list is performed)
The fact that frequenting a brick-and-mortar bank may not prevent accounts from becoming dormant leaves many owners incredulous. While consumers of all generations have embraced the conveniences of modern day online banking to some extent, many are still wary and insist on dealing with their local bank branch in person.
However, at many banks, the management of unclaimed property is handled at a corporate level. If local tellers and branch staff are not aware that a customer’s account is at risk of escheatment, they are unable to notify the customer. These same customers are later surprised by (and likely somewhat skeptical of) bank-issued due diligence notices. In this light, it is not hard to see why many due diligence notices go directly into trash cans and are ineffective in preventing escheatment.
Banks silently lose thousands of accounts each year by complying with unclaimed property rules.
Shrinking Dormancy Periods Put Accounts at Risk
Though unclaimed property is not a “tax,” states are increasingly relying on the revenue benefits of unclaimed property and, therefore, are interested in increasing the rate at which they receive unclaimed funds. Correspondingly, one of the most pronounced trends in the unclaimed property world is the steady contraction of dormancy periods for checking accounts, savings accounts, and other bank property types.
For example, in 2003, there were 12 states that had 3-year dormancy periods, with the rest at 5 years or longer.
In 2016, 27 jurisdictions had 5-year dormancy periods and 25 had 3-year dormancy periods.

In 2019, 27 jurisdictions (counting British Columbia and Quebec) have 5-year dormancy periods and 29 now have 3-year dormancy periods (counting Alberta). Guam even has a 2-year dormancy period.
Shrinking Timeframe to Protect Bank Customers From 2003 to 2019, 17 jurisdictions reduced the dormancy period for banking property to 3 years.
2003 22001166 2019 Jurisdictions with 3-year Dormancy Period
Banks must embrace the impact of shrinking dormancy periods. Although a 3-year dormancy period may seem like ample time in which to confirm or reconnect with an account owner, the actual timeframe for action is actually far shorter. To understand why, you must first consider how banks’ internal unclaimed property communication policies vary. On average, banks do not begin initiating proactive communication with dormant account owners until the account has been inactive or coded as “returned mail” for 18 months. This practice alone shortens a 5-year period to 3 and a half years, and halves a 3-year period to 1 and a half years. Given that banks must start their internal unclaimed property compliance processes anywhere from 6 to 8 months prior to the escheat deadline, this leaves a very narrow window of time to locate and communicate with dormant account owners.

Compliance Requirements vs. Best Practices in Banking
In general, banks are required to comply with due diligence procedures as delineated by each state prior to each year’s reporting deadline. This typically involves sending mailings to the dormant account owner’s last address in hopes that they will respond and update their account. In some jurisdictions, the law does not require any type of customer outreach.
However, for banks that want to prevent their customers’ accounts from escheating, simply following the states’ guidelines offers an insufficient level of protection. For instance, most banks follow the best practice of sending due diligence notices to all dormant account owners, even those in states that do not have any due diligence requirements.
Additionally, some banks send due diligence notices to all at-risk owners irrespective of account value, even though it is not required when certain aggregate dollar thresholds are not met. In general, these banks understand that compliance alone with due diligence requirements is an insufficient account retention strategy because:
• States often specify that due diligence efforts must occur within a specific timeframe, which is often during the last 3 to 4 months prior to the reporting deadline. If owners are skeptical or simply set the correspondence aside for later consideration, they may not respond in time to protect their account.
• Due diligence must occur relatively late in the dormancy period, and the account owners receiving due diligence notices have often been dormant for 3 to 5 years, making it difficult to find and communicate with them.
• Most due diligence statutes only require that one letter be sent to the account owner’s “current address” as shown on the bank’s records. However, in as many as 30% of dormant account situations, the address is out of date and there are no requirements that banks search for a new or better address before mailing.
• Due diligence letters are only required to be sent one time, whereas it can often take multiple waves of communications and varying types of correspondence (e.g. telephone and email) to generate significant owner response.

Keane has uncovered the impact of these “holes” in the state-regulated due diligence process while performing initial escheat compliance analyses for our banking and credit union clients. Thousands of customer accounts were historically being reported as unclaimed property that could have easily been protected if more comprehensive checks and balances were in place.
From a practical standpoint, it is unfair and unnecessary for banks to close the accounts of valuable long-time customers simply because they do not understand the subtleties of state unclaimed property laws.
Thousands of customer accounts were historically being reported as unclaimed property that could have easily been protected if more comprehensive checks and balances were in place.
Keane has developed a proven regimen of best practices that maximize the potential for banks to protect and retain dormant accounts.
Link Accounts Together and Encourage Online Account Monitoring
Generally speaking, being compliant is not the problem that most banks have. Rather, in many cases, banks tend to be over-compliant — meaning they report far more accounts as unclaimed property than they are required to by law.
Why does this happen? Primarily because banks either a) do not know what the specific requirements of each state are, or b) they do not have the correct internal processes in place to best apply the allowances within the laws.
For example, the simple act of customers logging in to their accounts online constitutes activity and thus eliminates the issue of inactivity. However, many banks do not have the IT systems in place to “see” online activity and compare it to the list of dormant accounts.
It is common for banks to allow a certificate of deposit to escheat because of inactivity despite the fact that the same customer has been very actively making deposits and withdrawals from a savings or checking account. It is a best practice to ensure that all of a customer’s accounts are linked together so activity can be assessed holistically.

Conduct Proactive Searches
Keane has learned that reconnecting with owners is far more art than it is science, but there are certainly basic tenets that need to be followed. For maximum success in locating account owners, knowing how to efficiently use all search resources at your disposal is essential. Electronic search programs should leverage a combination of databases, including those from multiple credit bureaus, real estate records, phone records, and the National Change of Address system.
Using these methodologies on searches indexed by social security number should yield a significant improvement compared to only performing the required due diligence. However, electronic resources have their limitations as well. Most automatically searchable data sources can produce erroneous data and “false positives” that may result in sensitive information being sent to the wrong person.
To mitigate opportunities for fraud or identity theft, additional crosschecks should be performed before the mailing to ensure that the name of the lost customer on the original search list matches the name on the newly found address. This practice will help minimize the 8% error factor that occurs when searching by SSN alone. This error rate is a simple reality associated with using public electronic data and credit information. Therefore, these resources should be supplemented with thorough verification methodologies and manual searches.
Act Early and Prioritize Outreach Based on Dormancy Periods
With a large volume of inactive accounts and limited time for owner location and reactivation, it is important to develop a formal knowledge of this population so you can start communication efforts quickly. There is no requirement that banks wait until the due diligence process to reach out to dormant account owners.
Ideally, you should conduct analysis long before the due diligence process kicks in. For instance, it is best to monitor which accounts have been inactive for 6 months, 12 months, 18 months, etc. and note the relationship with that customer. Once this is done, you can filter the results based on the dormancy period in each owner’s state to see how much time remains before escheatment. Armed with this data, you can prioritize outreach efforts. Start with accounts in states with 3-year dormancy periods, followed by accounts in states with 5-year dormancy periods. Allowing sufficient time for communication will improve your success in retaining these customers.

Send Multiple Notifications Using a Variety of Communication Tactics
It is very common that non-responsive account owners simply do not know that they have an account that is at risk of escheatment. The most effective means of quickly reaching a customer and successfully explaining the situation is through one-on-one telephone conversations. Direct mail programs can complement telephone outreach or serve as moderately effective campaigns on their own when time, budget, resources, or the volume of accounts prevent telephone efforts.
Using varied communication techniques and changing the appearance of each communication will also accelerate and increase overall response, as will customizing the specific details of the communication to the customer’s unique situation. Proper documentation is critical and correspondence should be retained in your files for control and audit purposes.
Keane has developed a proven regimen of best practices that maximize the potential for banks to protect and retain dormant accounts.
Continuously Educate Customers and Employees
Customers rarely view escheatment as their problem. Instead, they tend to blame their bank for failing to protect them. While that may be a difficult impression to change, educating customers is a worthwhile endeavor that many banks are attempting by implementing customer awareness campaigns. Integrating messages of warning or prevention into your regular customer communications can help. Whether it is on the web or printed on statement inserts, teaching customers about the need to keep their accounts active will pay dividends as dormancy periods shrink.

Beyond customers, banks should ensure that their operations and customer service teams are well trained and aware of the risks of unclaimed property. Creating this internal culture of awareness will help employees guide and inform customers appropriately and ultimately contribute to reduced escheat volumes.
Seek Out Beneficiaries and Heirs
Banks’ customer records frequently contain individuals who appear to be active account owners, but who are, in fact, deceased. Typically this results from situations where family members were simply unaware of the account or overlooked the paperwork when handling the owner’s estate. Therefore, it is not unusual for research efforts conducted on inactive accounts to uncover the fact that many account owners are no longer living.
Assisting heirs, beneficiaries, and estate representatives is an important process to consider since it is unlikely that basic due diligence efforts will prevent these accounts from escheating. The challenge is that identifying and assisting the correct legal claimants may require extensive research, time, and effort.

However, banks that are able to connect with new customer contacts learn that they can generate valuable goodwill and potentially preserve the banking relationship with the original owner’s family.
The bottom line? Banks that carefully consider their options and put the proper safeguards in place can reduce the population of accounts at risk of being escheated by up to 90% each year. This success translates directly into increased revenue and cost savings.
Keane is uniquely experienced in both the unclaimed property and banking industries—understanding bank products, operations, retail needs, and how to efficiently reduce escheatment challenges.

Outsourcing for Optimal Results
With tightening budgets and increasing regulatory pressures, most banks’ resources are stretched extremely thin. At the same time, the stakes are too high to not pay adequate attention to lost customers and inactive accounts. As the laws continue to evolve and dormancy periods contract across the country, the operational complexities of compliance and customer retention grow. As this is not a core competency for most financial institutions, many banks, mutual funds, brokerage firms, and insurers are choosing to outsource the management of unclaimed property compliance and communications.
The benefits of outsourcing are clear, as account retention and the return on investment that validate the decision are easily measurable.

Among the key “outsource or in-source” considerations should be:
• How many accounts escheat each year?
• How many dollars escheat each year?
• How many customers does due diligence protect?
• What additional efforts are conducted to locate and reactivate accounts?
• What is the total internal cost?
• What is the ultimate value to the bank?
Beyond the positive impact on account retention and revenue, outsourcing can free your operations staff to focus on its core responsibilities and specialties that are central to your bank’s success.

Lean on Keane
Keane is the leading provider of unclaimed property communications, compliance, and consulting services to the financial services industry. We deliver customized solutions for each bank’s unique circumstances to proactively protect as many dormant accounts as possible. We will help you preserve your customers, your reputation, and your bottom line.

Unclaimed property. Uncompromising performance.

Corporate Offices: 450 Seventh Avenue, Suite 1707 | New York, NY 10123 | 1.866.421.6800 Operations Center: 640 Freedom Business Center Drive, Suite 600 | King of Prussia, PA 19406 | 1.800.848.8896 © Keane 2019