Report: Death Trap
How Powerful Special Interests Are Looking to Cash In on the Bereaved and the Unsuspecting
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More than 2.5 million Americans die each year.1 For the families left behind the loss is often devastating – made even more difficult by the various costs associated with the passing of the loved one. Many take out life insurance policies in an effort to cover these costs and to help provide economic security for spouses, children, and others into the future.
But what happens when those left behind don’t know the deceased had a life insurance policy naming them as a beneficiary? By law, insurers are required to try and find those entitled to a claim on the policy. How hard these companies actually work to carry out the decedent’s wishes is debatable. If they are unable to find the beneficiaries named by an insurance policy, they are required to turn the money over to state unclaimed property departments.
Perhaps it is just a coincidence, but all too often life insurance companies are unable to find the beneficiaries of a policy. If they fail to turn the money over to state unclaimed property departments and instead choose to sit on it, they are unjustly rewarded with the ability to continue profiting from the investment of someone who is now deceased.
In order to make sure this does not happen, states are authorized to audit these companies and often contract with professional non-government auditors to help assure compliance with state unclaimed property laws. More than life insurance policies, these laws also govern forgotten bank accounts, unused gift cards, and much more.
In a perfect world, that would be the end of this story but powerful special interests are working hard to quietly influence a little-known commission with the power to reshape state unclaimed property laws. These interests are single minded in their focus to make it far more difficult for states to return unclaimed property to its rightful owners.
This report identifies the commission currently considering changes to state unclaimed property laws, the process by which these changes are sought, and the powerful special interests and well-connected insiders pushing hard to secure a windfall for big business at the expense of everyday Americans.
Little-Known but Quite Influential
According to its website, the Uniform Law Commission (ULC) “provides states with non-partisan, well conceived, and well drafted legislation that brings clarity and stability to critical areas” of state law. In other words, this arcane non-profit organization gives states model legislation on a host of issues where having similar laws from state to state can be important.
Founded in 1892, the ULC is made of up commissioners appointed by the governments of each of the 50 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. The only requirement for membership is that commissioners be lawyers who are qualified to practice law.2
Within the ULC, there are dozens of committees charged with the daunting task of drafting legislation on issues ranging from wage garnishment and social media privacy to family law arbitration and yes, even unclaimed property.3 Committees are often comprised of more than a dozen members including commissioners, American Bar Association members, and ULC staff.
Once model legislation has been approved by the ULC it is then recommended to state legislatures for consideration.4
A Lot Can Change in 20 Years
The ULC’s involvement with state unclaimed property law dates back more than 60 years. Most recently, it made revisions to the Uniform Unclaimed Property Act in 1995, stating at the time that the measure was aimed at preventing “ordinary people for the most part, from losing their rights to property that is justifiably theirs. It is theirs because they earned it, inherited it, or were given it. Those entities and institutions that hold property are its custodians, not its owners.”5
Now, almost exactly 20 years later, the ULC has convened a committee to “draft a revision” to the Uniform Unclaimed Property Act.6 If this committee’s first round of suggested changes to the Act is any indication, it is the interests of the aforementioned “ordinary people” that appear to be in jeopardy. Since about 40 states have enacted some version of ULC unclaimed property legislation over the years, efforts to water down safeguards that protect hardworking Americans could have a disastrous impact.
In July 2015, the Drafting Committee to Revise the Uniform Unclaimed Property Act offered model legislation at the ULC’s annual meeting that would transform the purpose of the Act from protecting consumers to protecting the bottom lines of corporate interests.7 A letter sent to drafting committee members by several consumer watchdog organizations in October 2015 summarized several of the “detrimental revisions” being considered, including:8
- Providing corporations with the ability to limit “the time by which property must be claimed” and making it unlikely property will ever be “turned over to the state” or its rightful owner.
- Exempting gift cards – a product of “increasing popularity” product – from being regulated by “the scope of the Act” even though a growing number of the cards go unclaimed.
- “Absolving” corporations, in many circumstances, of “any obligation to take steps to determine whether property is required to be turned over to the state due to the death of a customer.”
- Requiring “financial institutions to receive two consecutive pieces of returned first class mail before they would even begin to track whether” retirement or other investment accounts “might be unclaimed.” What would happen if the first piece of mail is properly marked and returned but the second is not because the new resident receiving the mail never gets around to marking additional mailings for return? The financial institution would be able to hold onto the property for even longer further delaying the transfer of property to the state or its rightful owner.
- Making it difficult for states to use non-government professional auditors “to assist them in enforcing” unclaimed property laws and to ensure such property “is reported as required by large multi-state corporations.”
On October 9, 2015, the ULC’s Drafting Committee to Revise the Uniform Unclaimed Property Act will meet in Washington, D.C. to consider these and other changes.9 From there the committee must agree on a revised draft to be considered at the next annual meeting of the ULC in 2016. If an altered version of the Act is approved at this annual meeting it will be suggested to state legislatures for adoption.
Pressure from Industry
That such dramatic changes to the Uniform Unclaimed Property Act are being considered is not by accident. Powerful special interests are actively pressuring committee members to alter the model legislation in their favor. Among those leading the charge are the U.S. Chamber of Commerce and the American Council of Life Insurers:
- U.S. Chamber of Commerce: The U.S. Chamber of Commerce’s Institute for Legal Reform (ILR) and a state affiliate in Michigan have written members of the drafting committee at least three times to seek changes to the Uniform Unclaimed Property Act that would promote “voluntary disclosures” of unclaimed property and make it more difficult for states to work with non-government professional auditors to ensure corporations are following unclaimed property laws. In a February 2015 letter, the ILR noted that it was pleased committee members had incorporated some of the “reforms we recommended” before encouraging the committee to go even further.10
- American Council of Life Insurers: The life insurance industry’s special interest trade group – the American Council of Life Insurers (ACLI) – has written drafting committee members at least two times in recent months pushing to keep at bay tougher regulations aimed at helping to determine if customers have died. In a September 2015 letter to committee members, ACLI wrote that it was “encouraged by the framework” committee members were pursuing.11
A Co-Chair in Conflict
Meanwhile, a longtime ULC commissioner responsible for co-chairing the drafting committee has worked to undermine state unclaimed property laws and works as a partner in a law firm whose clients would benefit greatly if the Act is gutted.
A partner at the Delaware law firm of Morris Nichols Arsht & Tunnell, Michael Houghton is the immediate past president of the ULC and now serves as co-chair of the organization’s Drafting Committee to Revise the Uniform Unclaimed Property Act.12 He works with the firm’s Unclaimed Property Counseling Group, which, according to the firm’s website, “has advised numerous holders, including Fortune 500 companies, on the various issues arising from compliance with state unclaimed property laws, with a particular focus on defending audits conducted by the State of Delaware and its contract auditors as well as completing voluntary compliance agreements on a multistate basis.”13
If past is prologue, one only need review Houghton’s previous work to revise unclaimed property law to understand where the ULC drafting committee he co-chairs might be headed. In 2010, Houghton co-authored an article in support of Delaware S.B. 272, which revised the state’s unclaimed property law in favor or major corporations. Heaping praise on the reforms, Houghton and his co-author wrote at the time that the new law created “an administrative appeals process” that would aid corporations seeking to avoid turning over unclaimed property to the state and noted that Delaware was now likely one of “fewer than a dozen states” with such a “significant” appeals mechanism. They were also pleased the new law would help “ease the administrative reporting burdens” of those holding potential unclaimed property.
They concluded their praise of S.B. 272 with what could easily be read as a warning today, writing that the new law “does not purport to completely address complaints the national business community have with Delaware’s program, but it is a step in the direction of change and hopefully the start of a process.”14
Additionally, the Delaware attorney filed a 2012 amicus brief in support of the issuers of gift cards and travelers checks in a case over a New Jersey law that defined “when the state can seize” such unclaimed items.15 16 The drafting committee that Houghton currently co-chairs at the ULC is considering changes to the Uniform Unclaimed Property Act that would exempt unclaimed gift cards.
It is hardly a surprise then that the “national business community” has taken such a keen interest in the Houghton co-chaired drafting committee.
Conclusion
The sad truth is that the Uniform Law Commission’s Drafting Committee to Revise the Uniform Unclaimed Property Act is considering a number of changes to the Act designed to keep beneficiaries separated from property that is rightfully theirs for as long as possible. When big corporations are able to do this they win and consumers lose.
That means, for example, hardworking men and women who do not know they are entitled to a claim on an insurance policy taken out by a loved one who has passed away will not receive money when it is needed most. Worse still, these loved ones will lose the peace of mind they thought they had purchased with their policy.
Americans win when big corporations hand over unclaimed property to the states. Because states are legally obligated to return property to the owner, they make it easier for consumers to search through websites to see if they are entitled to unclaimed property they may not have even known existed.
If this committee is guided in such a way that betrays a conflict of interest in its leadership or in any way succumbs to pressure from industry, it is the “ordinary people” who will lose what they rightly earned, inherited, or were given. And it is precisely this type of corporate excess that this Act was initially developed to guard against.
End Notes
1 Center for Disease Control and Prevention, “Deaths and Mortality,” Website Accessed 10/5/2015
2 Uniform Law Commission, “About the ULC,” Website Accessed 10/5/2015
3 Uniform Law Commission, “Committees,” Website Accessed 10/5/2015
4 Uniform Law Commission, “Constitution,” Website Accessed 10/5/2015
5 Uniform Law Commission, “Why States Should Adopt UUPA,” Last Updated 1995, Website Accessed 10/5/2015
6 Uniform Law Commission, “Committees: Revise the Uniform Unclaimed Property Act,” Website Accessed 10/5/2015
7 Uniform Law Commission, Draft Revised Uniform Unclaimed Property Act, Last Updated 6/8/2015, Website Accessed 10/5/2015
8 Letter from Consumer Action, Consumer Federation of America, Consumers Union, National Associate of Consumer Advocates, National Consumer Law Center, Public Citizen, and U.S. PIRG to ULC’s Drafting Committee to Revise the Uniform Unclaimed Property Act, Sent 10/7/2015
9 Uniform Law Commission, Revised Uniform Unclaimed Property Act Committee Meeting Draft, Last Updated 9/29/2015, Website Accessed 10/5/2015
10 Letters from U.S. Chamber of Commerce Institute for Legal Reform and Michigan Chamber of Commerce to ULC’s Drafting Committee to Revise the Uniform Unclaimed Property Act, Sent 2/24/2015; 4/18/2014; and 7/2/2014
11 Letters from American Council of Life Insurers to ULC’s Drafting Committee to Revise the Uniform Unclaimed Property Act, Sent 12/29/2014 and 9/18/2015
12 Morris Nichols Arsht and Tunnell, Houghton Biography, Website Accessed 10/5/2015
13 Morris Nichols Arsht and Tunnell, “Unclaimed Property,” Website Accessed 10/5/2015
14 “Delaware Makes Significant Changes to Its Unclaimed Property Statute,” Michael Houghton and Brenda R. Hayrack, Corporate Counsel Weekly, 7/28/10
15 “Retailers, Amex Fight State over ‘Abandoned’ Gift Card Balances,” Hugh R. Morley, The Star-Ledger, 10/4/2010
16 N.J. Retail Merchants Association v. Sidamon-Eristoff, 669 F.3d 374