In 2016, a class action law suit was filed against the Illinois Treasurer because they did not compensate the owner of unclaimed money held by the Treasurer for the interest or other earnings on the property while in its custody. The treasurer finally settled in 2020, after litigating aggressively against the charges but ultimately losing on two separate appeals.
Not all States have the same unclaimed money regulations. There is a uniform unclaimed property act that has been adopted, in whole or in part by 15 States (IL is one of these States). It is illustrative of the landscape to look at some text from the draft and the Act itself:
In the “Prefatory Note” - why are laws so hard to read and understand? Its an introduction!
-”… since inception all of the Uniform Unclaimed Property Acts have been “custodial” acts which deal with the right of states to take custody of abandoned property to hold indefinitely for the benefit of the owner, which is different from a state taking title to and ownership of abandoned property under its escheat law.”
-”The state merely holds possession of the property, indefinitely, as custodian for the benefit of the owner or the previous owner’s successors-in-interest or legal heirs.”
-”Its primary function is to provide protection for owners and reunite them with their lost or abandoned property.”
-”While unclaimed property funds are not tax revenues, some state courts have agreed with states that they have the right to enforce unclaimed property claims as a means of augmenting state revenues.”
- “…a state is without legal authority to seize and take title to property belonging to a citizen other than by condemnation or seizure for public use for which it must pay fair compensation, forfeiture for wrongdoing, or by escheat.”.
-”Administrators recognize that they are under a duty to seek to locate owners and that unnecessary requirements that frustrate or delay the return of unclaimed property to owners has no place in the context of a custodial unclaimed property act.”
These snippets of text are not comprehensive, but they are not taken out of context either. It is very clear that the over $100,000,000 residing in State coffers (well its not really residing there as we will see shortly, its already been spent!) is money that does not belong to the government, is supposed to be held for the benefit of the owner - earning interest, dividends, and accruals, and should be fairly easy to collect.
And yet, despite the language to the contrary, State unclaimed property offices, on behalf of the State, continue to treat this money as free cash flow. The requirements for approval often frustrate claimants, with our most recent data showing that about half (50%) of claim made go unpaid, despite the claimant being the owner of the funds in many of these instances. Failure being directly correlated to the unnecessary requirements put in place by the Administrators of these programs.
It should be clear that the spirit of the law is to custody for the safekeeping of the owner; the introduction to the Act states it different ways at least half a dozen times, yet the following language is imbedded in the actual text of the Act (SECTION 801. DEPOSIT OF FUNDS BY ADMINISTRATOR):
“a. Except as otherwise provided in this section, the administrator shall deposit in the general fund of the state] all funds received under this [act], including proceeds from the sale of property under [Article] 7.
b. The administrator shall maintain an account with an amount of funds the administrator reasonably estimates is sufficient to pay claims allowed under this [act] [in each fiscal [year] [quarter]]. If the aggregate amount of claims by owners allowed at any time exceeds the amount held in the account, an excess claim must be paid out of the general funds of the state.”
What we infer from the language is that although the funds are held by the State in custody, they are discretionally utilized by the Administrator. And everyone knows what happens to discretionary funds held by a government agency; just look at any State’s budget deficit. Revenues almost never match Spending. And just like any individual’s finances, if you overspend, eventually you run out of money, and lose your credit worthiness. Assuming that the government is not cutting spending and not balancing a budget, we can all provide a reasonable guess at the eventual outcome.
Most, if not all States have a huge unclaimed fund liability that is both underfunded, if not unfunded, and growing. They cannot pay all the money owed to the owners, and so we can rest assured they will continue to act in a manner that prevents the majority of the money from being properly dispersed - such as liquidating securities and not paying full interest, or accruals.
***big ups to the New York State Comptroller for offering market value on securities and interest and dividends*** Every other State that liquidates securities is denying the gains that owners are entitled to receive on investments made for that single purpose.
To conclude, we offer a loose historical analogy - most folks give credit to Thomas Edison for inventing the lightbulb. He did not; he created a practical light bulb that operated on direct current (DC) electricity system, which was actually an inferior technology to William Staney’s alternating current (AC) electricity system. DC - think Christmas lights where one bulb goes out and the rest of the chain goes out, the electricity only flows in one direction; vs AC - the electricity reverses direction and allows for far more practical applications. Edison even went out of his way to spread false propaganda to diminish AC technology for the benefit of his system.
Similarly, some State unclaimed property administrators like to take credit for safeguarding assets and being aggressive in its return, while spread false propaganda about fraud and the utility and legitimacy of professional unclaimed funds recovery agents; but their system is like an inferior DC technology, in that the funds basically flow in one direction - to the State. And the efforts of recovery professionals like Fletcher, who try to push for the better system just like AC technology - the funds flow to the State, but they also flow back to the owner, may not get universal credit.
If the transmission wires of unclaimed funds were upgraded and not obstructed, we could increase the voltage and the velocity of money being returned, but the lines are maintained by the State and they have no incentive to expand the capability.