SPRINGFIELD — A proposed new law could change the rules in Illinois concerning unclaimed property - and particularly, unclaimed gift cards and unclaimed property from business-to-business transactions, both of which may no longer be exempt from reverting to the state.
Freda Pepper, an attorney who works in the Philadelphia office of the firm of Reed Smith LLP, told the Cook County Record that this bill would update Illinois laws on unclaimed property.
Currently, she said, "Illinois law exempts business-to-business transactions and gift cards from escheat," or reversion to the state.
The new proposed legislation, knwon as HB 2603, "does not include those exemptions," Pepper said, even though the bill largely "proposes to overhaul and modernize Illinois’ unclaimed property law and replace it with language from the Revised Uniform Unclaimed Property Act of 2016 (RUUPA)."
Under current Illinois law, financial property, such as securities, are considered "abandoned after a period of no contact by the owner, even if the owner is regularly receiving mail from the issuer."
Under the proposed legislation, however, a security is presumed abandoned upon the earlier of the following: one, three years after the date a communication sent by the holder by first-class United States mail to the apparent owner is returned to the holder as undelivered or, two, five years after the date of the apparent owner’s last indication of interest in the security," Pepper said.
Pepper said that consumers, on the whole, would rather have House Bill 2603 than current Illinois law.
"While the two-prong approach in HB 2603 is more favorable to consumers than the present law, it is inconsistent with the pure return-mail standard contained in the RUUPA," she said. "The RUUPA standard is more consistent with the Securities and Exchange Commission Rule 17Ad-17 thereby simplifying compliance for holders. Also, a return-mail standard aligns with owners’ long-term investment strategy of buy-and-hold. Practical experience indicates that this inactivity standard disproportionately (impacts) seniors who are counting on their investments to be preserved until such time as they need to liquidate their securities for their own use."
Pepper said the bill could add new burdens for businesses, as it would create more reporting requirements for Illinois businesses, including for unclaimed property from the preceding 14 years, which previously had been deemed exempt from escheat.
"Records dating back to that period of time will most likely not exist, particularly because there has been no record retention requirement contained in Illinois’ unclaimed property law," Pepper said. "This would impose a significant financial burden on (businesses) that for decades have relied on the established Illinois law."
And the bill could also bring about a lot of legal actions, Pepper added.
"Initially, the transitional provision will result in a one-time cash infusion to the state during the 2018 reporting year," she said. "And, because gift cards and business-to-business transactions would thereafter be deemed reportable, the amounts reported to the state on a yearly basis will increase. However, should the bill pass as written with the retroactive application of the new law, the likelihood of litigation opposing the law will dramatically increase."
Pepper said she can only speculate as to why Illinois is proposing these changes.
"One could only assume that the state wanted to modernize (...) its unclaimed property law," she said. "Further, states are constantly looking for ways to increase the flow of cash and often do so by changing their unclaimed property laws."
The legislation was introduced Feb. 8. According to Illinois General Assembly legislative records, the bill was most recently returned to the House Rules Committee on March 31.
"There was no action taken by the crossover deadline on (April 28)," Pepper said. "I believe that means that if there is action on this bill, it won’t be acted upon until 2018."