Banking & Unclaimed Property

Best Practices to Help Banks: • Retain Assets • Minimize Escheat • Retain Customer Relationships In the banking world, unclaimed property compliance can In all of these circumstances, if the account owner often take a backseat to other critical issues; however, it does not take action during the dormancy period, is no less significant considering its potential effects on the account must be reported and remitted — customer retention, reputation management, and the or “escheated” — to the state of the owner’s last known business of growing assets. address. Generally speaking, dormancy periods for banking property range between 3 and 5 years. Customer relationships are the bedrock for banking success, but if assets that consumers have entrusted to With 55 reporting jurisdictions, including the District your bank are escheated to the state, those relationships of Columbia, Puerto Rico, the U.S. Virgin Islands, the could be in jeopardy — or worse, terminated altogether. Mariana Islands, and Guam (and no two jurisdictions Every year, millions of dollars in banking assets are sharing the exact same laws) knowing how to report escheated. Banks are left with the burden of attempting correctly and remain in full compliance is a challenge to resolve issues from irate customers and deal with the for all banks and other business entities. 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 Banks utilizing Keane’s best practices fundamental level, but also the steps you can take to can reduce the amount of escheat risk reduce the risk of escheatment and increase the retention by up to 90% each year. This success of customer relationships and assets. translates directly into increased The Challenge of Dormant Bank Accounts revenue and cost savings. 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 Regardless of the type of account or unclaimed property, the most common examples relative property that is at risk of being escheated, to banks include savings accounts, checking accounts, Keane’s customized programs help clients: 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 • Locate lost customers & reactivate that banks acquire when they merge with, or purchase, dormant accounts another bank. These acquisitions may hit the acquiring bank with an unknown unclaimed property liability which • Retain more assets under management can result in late property, assets due for immediate remittance, and fines or penalties. • Reduce expenses related to location and reporting 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 • Review sufficiency of existing “owner-generated” activity on the account for a specified policies and procedures period of time called the “dormancy period.” A second key dormancy trigger is if physical mail sent to a customer • Manage risk and implement is returned from the post office as “undeliverable.” A compliance solutions third trigger, which is pertinent specifically to banks, is when customers fail to pay the applicable fees for the • Reduce non-compliance maintenance of their safe deposit box. 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 Challenge: Keane to manage its customer location and outreach. Every Client wanted to prevent 6 months, the bank begins its internal process of evaluating the volume of dormant accounts that is eligible to escheat $12 million in customer in the following spring or fall compliance cycle. As a result accounts from escheating of this process, in the spring cycle, it identified more to the states. than $12 million in dormant checking accounts, savings accounts, and certificates of deposit that were at risk. Solution: Keane’s program is designed to locate new addresses for Keane implemented an dormant account owners and then conduct an outbound Owner Location and communication campaign to protect as many accounts as Communication Program possible. Unfortunately, the bank’s internal processes were to help the bank reconnect unable to identify accounts in the early stages of dormancy, with account owners. which prevented Keane from receiving the necessary information until only 7 months prior to the escheat deadline. Accordingly, Keane developed a customized Results: process to rapidly research the accounts within the available Within only 5 months timeframe until the process could be improved. Keane reconnected with 65% of at-risk account Despite the timing challenges, Keane’s program was — owners. 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 More than a large-scale customer service coup, which ultimately enhances the bank’s reputation and facilitates 86% revenue growth. of Escheatable Property was Protected Why Bank Customers Need Help The lack of consumer awareness coupled with a narrowing window of dormancy periods creates the Despite the pervasive nature of unclaimed property perfect storm for unclaimed property problems that laws, most Americans are unfamiliar with the concept can endanger valuable customer relationships. and the simple reality that banks are legally required to turn accounts over to the states if account owners The unfortunate reality is that after investing hundreds are “inactive” — until, of course, it happens to them. of dollars to acquire just one new customer, banks silently And it will happen. lose thousands of accounts each year by complying with unclaimed property rules. While the ultimate “blame” According to the National Association of Unclaimed can be placed on the customer for not keeping Property Administrators (NAUPA), anually over $7 their account active, very few will point the finger at billion in unclaimed property is collected by state themselves. Rather, the customer will unfairly blame governments nationwide. To further illustrate the the bank. But, as the saying goes, perception is reality — point, according to national news reports, some states and it can wreak havoc on a bank’s reputation. report as many as 1 in 7 residents has unclaimed property of some kind. Banks Must Focus on Owner Activity There is variation in terms of how states define the triggering event for when an account is considered In most jurisdictions dormant and when it is reportable as unclaimed. inactive property can Generalizing across all property types, the basic categories are: be reported to the state in just 3 years. 1. Lack of owner activity 2. Undeliverable mail 3. A combination of the two The reasons why these circumstances exist are numerous, For bank accounts, inactivity is the dominant criteria. but easily understood. Most consumers do not keep track of all of their accounts on a regular basis and do not There are many things consumers can do to keep their update their personal account information when accounts from becoming inactive. Specific examples of necessary — for instance, with a change of name or account activity are: mailing address. • Direction or action by the owner to increase, decrease, Quite logically, many customers assume that once their or change the amount or type of assets held in the assets have been entrusted to a bank, their money is safe. account (i.e. depositing or withdrawing money from For many, these accounts are out of sight and out of an account) mind, safely guarded until they decide to make a • Owner “log-ins” to online accounts withdrawal or access their safe deposit box. • Written communication between the owner and the Unfortunately, the proverbial “rainy day” approach can bank be costly in today’s world. Unless there has been activity on their account, the owner may be in for a surprise, • An indication of interest in the property as evidenced since, in most jurisdictions, their property can be reported by a memo or other record on file to the state within 3 years. Even consumers who silently • Payment of safe deposit box fees track and monitor their accounts may not technically be Conversely, and very troubling for older customers in “active” in the eyes of the applicable state’s laws. For particular, is the list of events or activities that do NOT example, in some cases, even a telephone conversation constitute activity from an unclaimed property perspective. with a bank employee about the account may not qualify as activity. Specifically, that list includes: In 2019, 27 jurisdictions (counting British Columbia and Quebec) have 5-year dormancy periods and 29 now have • The generation of or automatic reinvestment of 3-year dormancy periods (counting Alberta). Guam even interest has a 2-year dormancy period. • Telephone conversations that have not been properly documented between the owner and the bank • In-person bank visits (unless one of the activities from Shrinking Timeframe to the proper list is performed) Protect Bank Customers From 2003 to 2019, 17 jurisdictions The fact that frequenting a brick-and-mortar bank may reduced the dormancy period for banking not prevent accounts from becoming dormant leaves property to 3 years. many owners incredulous. While consumers of all generations have embraced the conveniences of 29 modern day online banking to some extent, many are still wary and insist on dealing with their local bank 25 branch in person. 27

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 12 (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. 2003 20162016 2019 Banks silently lose thousands of Jurisdictions with 3-year Dormancy Period accounts each year by complying with unclaimed property rules. 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 Shrinking Dormancy Periods Put account owner, the actual timeframe for action Accounts at Risk is actually far shorter. To understand why, you must Though unclaimed property is not a “tax,” states first consider how banks’ internal unclaimed property are increasingly relying on the revenue benefits of communication policies vary. unclaimed property and, therefore, are interested in increasing the rate at which they receive unclaimed On average, banks do not begin initiating proactive funds. Correspondingly, one of the most pronounced communication with dormant account owners until the trends in the unclaimed property world is the steady account has been inactive or coded as “returned mail” for contraction of dormancy periods for checking accounts, 18 months. This practice alone shortens a 5-year period to savings accounts, and other bank property types. 3 and a half years, and halves a 3-year period to 1 and a half years. For example, in 2003, there were 12 states that had 3-year dormancy periods, with the rest at 5 years Given that banks must start their internal unclaimed or longer. property compliance processes anywhere from 6 to 8 months prior to the escheat deadline, this leaves a very In 2016, 27 jurisdictions had 5-year dormancy periods and narrow window of time to locate and communicate with 25 had 3-year dormancy periods. dormant account owners. Compliance Requirements vs. Keane has uncovered the impact of these “holes” in the state-regulated due diligence process while Best Practices in Banking performing initial escheat compliance analyses for our In general, banks are required to comply with due banking and credit union clients. Thousands of customer diligence procedures as delineated by each state prior accounts were historically being reported as unclaimed to each year’s reporting deadline. This typically involves property that could have easily been protected if more sending mailings to the dormant account owner’s last comprehensive checks and balances were in place. address in hopes that they will respond and update their account. In some jurisdictions, the law does not require From a practical standpoint, it is unfair and unnecessary any type of customer outreach. for banks to close the accounts of valuable long-time customers simply because they do not understand the However, for banks that want to prevent their customers’ subtleties of state unclaimed property laws. accounts from escheating, simply following the states’ guidelines offers an insufficient level of protection. For instance, most banks follow the best practice of Thousands of customer sending due diligence notices to all dormant account accounts were historically owners, even those in states that do not have any due being reported as unclaimed diligence requirements. property that could have Additionally, some banks send due diligence notices to all easily been protected if more at-risk owners irrespective of account value, even though comprehensive checks and it is not required when certain aggregate dollar thresholds are not met. In general, these banks understand that balances were in place. compliance alone with due diligence requirements is an insufficient account retention strategy because: Keane has developed a proven regimen of best practices that maximize the potential for banks • States often specify that due diligence efforts must to protect and retain dormant accounts. occur within a specific timeframe, which is often during the last 3 to 4 months prior to the Link Accounts Together and Encourage reporting deadline. If owners are skeptical or simply Online Account Monitoring set the correspondence aside for later consideration, Generally speaking, being compliant is not the problem they may not respond in time to protect that most banks have. Rather, in many cases, banks their account. tend to be over-compliant — meaning they report far • Due diligence must occur relatively late in the more accounts as unclaimed property than they are dormancy period, and the account owners receiving required to by law. due diligence notices have often been dormant for Why does this happen? Primarily because banks either a) 3 to 5 years, making it difficult to find and do not know what the specific requirements of each state communicate with them. are, or b) they do not have the correct internal processes • Most due diligence statutes only require that one in place to best apply the allowances within the laws. letter be sent to the account owner’s “current For example, the simple act of customers logging in address” as shown on the bank’s records. However, to their accounts online constitutes activity and thus in as many as 30% of dormant account eliminates the issue of inactivity. However, many banks situations, the address is out of date and there are no do not have the IT systems in place to “see” online requirements that banks search for a new or better activity and compare it to the list of dormant accounts. address before mailing. It is common for banks to allow a certificate of deposit • Due diligence letters are only required to be sent one to escheat because of inactivity despite the fact that the time, whereas it can often take multiple waves of same customer has been very actively making deposits communications and varying types of correspondence and withdrawals from a savings or checking account. It is (e.g. telephone and email) to generate significant a best practice to ensure that all of a customer’s accounts owner response. are linked together so activity can be assessed holistically. Conduct Proactive Searches Send Multiple Notifications Using a Keane has learned that reconnecting with owners is Variety of Communication Tactics far more art than it is science, but there are certainly It is very common that non-responsive basic tenets that need to be followed. For maximum account owners simply do not success in locating account owners, knowing how to know that they have an account efficiently use all search resources at your disposal is that is at risk of escheatment. The essential. Electronic search programs should leverage a most effective means of quickly combination of databases, including those from multiple reaching a customer and successfully credit bureaus, real estate records, phone records, and the explaining the situation is through National Change of Address system. one-on-one telephone conversations. Direct mail programs can complement telephone Using these methodologies on searches indexed by social outreach or serve as moderately effective campaigns on security number should yield a significant improvement their own when time, budget, resources, or the volume of compared to only performing the required due diligence. accounts prevent telephone efforts. However, electronic resources have their limitations as well. Using varied communication techniques and changing the Most automatically searchable data sources can produce appearance of each communication will also accelerate erroneous data and “false positives” that may result in and increase overall response, as will customizing the sensitive information being sent to the wrong person. specific details of the communication to the customer’s To mitigate opportunities for fraud or identity theft, unique situation. Proper documentation is critical and additional crosschecks should be performed before correspondence should be retained in your files for the mailing to ensure that the name of the lost customer control and audit purposes. on the original search list matches the name on the newly found address. This practice will help minimize the 8% Keane has developed a error factor that occurs when searching by SSN alone. proven regimen of best This error rate is a simple reality associated with using practices that maximize public electronic data and credit information. Therefore, these resources should be supplemented with thorough the potential for banks verification methodologies and manual searches. to protect and retain Act Early and Prioritize Outreach Based dormant accounts. 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 Continuously Educate Customers you can start communication efforts quickly. There is and Employees no requirement that banks wait until the due diligence Customers rarely view escheatment as their problem. process to reach out to dormant account owners. Instead, they tend to blame their bank for failing to protect them. While that may be a difficult impression to Ideally, you should conduct analysis long before the change, educating customers is a worthwhile endeavor due diligence process kicks in. For instance, it is best that many banks are attempting by implementing to monitor which accounts have been inactive for 6 customer awareness campaigns. Integrating messages months, 12 months, 18 months, etc. and note the of warning or prevention into your regular customer relationship with that customer. Once this is done, you communications can help. Whether it is on the web or can filter the results based on the dormancy period in printed on statement inserts, teaching customers about each owner’s state to see how much time remains before the need to keep their accounts active will pay dividends escheatment. Armed with this data, you can prioritize as dormancy periods shrink. 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. Beyond customers, banks should ensure that their However, banks that are able to connect with new operations and customer service teams are well customer contacts learn that they can generate trained and aware of the risks of unclaimed property. valuable goodwill and potentially preserve the Creating this internal culture of awareness will banking relationship with the original owner’s family. help employees guide and inform customers appropriately and ultimately contribute to reduced The bottom line? Banks that carefully consider their escheat volumes. options and put the proper safeguards in place can reduce the population of accounts at risk of being Seek Out Beneficiaries and Heirs escheated by up to 90% each year. This success translates directly into increased revenue and Banks’ customer records frequently contain cost savings. individuals who appear to be active account owners, but who are, in fact, deceased. Typically this results from situations where family members were simply Keane is uniquely experienced in unaware of the account or overlooked the paperwork both the unclaimed property and when handling the owner’s estate. Therefore, it is not banking industries—understanding unusual for research efforts conducted on inactive accounts to uncover the fact that many account bank products, operations, retail owners are no longer living. needs, and how to efficiently reduce escheatment challenges. 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.

Outsourcing for Optimal Results Among the key “outsource or in-source” With tightening budgets and increasing regulatory considerations should be: pressures, most banks’ resources are stretched • How many accounts escheat each year? extremely thin. At the same time, the stakes are too • How many dollars escheat each year? high to not pay adequate attention to lost customers and inactive accounts. As the laws continue to evolve • How many customers does due diligence protect? and dormancy periods contract across the country, • What additional efforts are conducted to locate and the operational complexities of compliance and reactivate accounts? customer retention grow. As this is not a core competency for most financial institutions, many • What is the total internal cost? banks, mutual funds, brokerage firms, and insurers • What is the ultimate value to the bank? are choosing to outsource the management of unclaimed property compliance and communications. Beyond the positive impact on account retention and revenue, outsourcing can free your operations staff The benefits of outsourcing are clear, as account to focus on its core responsibilities and specialties retention and the return on investment that validate that are central to your bank’s success. the decision are easily measurable.

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.

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