Sunday, December 17, 2017

Solutions to Reducing Dormant Accounts at Your Institution

Posted by Sharon February 8, 2013 12:03pm

Photo Credit: Kittikun

Unclaimed property is governed by state laws. Although each state may be a little different in its requirements, all will require you to escheat unclaimed property to the state after a certain length of time where you have not had contact with your customer.  Again, while these suggestions may appear straight forward on the surface, they may not be the best bet for your particular institution.  However, below I have listed some solutions that may help you take better control of your dormant accounts, reduce the number of dormant accounts at your institution, and in turn, reduce the number and dollar amount of accounts that need to be escheated to the state.

  1. There is no set time frame under state law under which you are required to consider an account “dormant”.  So, your institution needs to determine the length of time you will consider for an account to become dormant.  Consider also having an “inactive” account status.  I know in NJ and NY, the escheat period for deposit accounts is 3 years with no customer contact.  Getting a head start on contact with the customer could reduce the amount of accounts that actually go dormant.  I have seen institutions work well with having an account be considered “inactive” after one year with no activity and “dormant” after two years with no activity.
  2. Assign responsibility for the review of dormant accounts on a periodic basis.  Depending on the size and nature of your institution, volume of dormant accounts, and staff availability, this could be done on a daily, weekly or monthly basis. 
  3. Compare the accounts listed on your dormant account report to each customer’s profile, or portfolio, to determine if they are using any other accounts at the bank.  If they are, then you could change the account status to active, as abandoned property is based on overall customer contact, not individual account usage. 
  4.  As an account actually becomes “inactive” or “dormant”, it will appear on your “inactive/dormant account report”.  Send a letter to the customer that day of the review of the report and inform them that their account has gone “inactive” or “dormant”.  By trying to get in contact with the customer earlier, you have better chances of them contacting the Bank in some cases.  This way, you send them a letter when the account becomes “inactive” after one year.  If they don’t respond, you have another opportunity to send them a letter when the account becomes “dormant” after two years.
  5.  Charge dormant account fees.  At the current time, there is nothing in the NJ or NY state laws that prevents a Bank from charging an “inactive” and/or “dormant” account fee, as long as the fee is “reasonable”.  (NY Banking Law limits the service charge fees on inactive savings accounts to no more than the service charge fees assessed against an active savings account. (NYS Banking Law Article 1 Section 7).  After all, monitoring of these accounts is costing your bank money, so you may want to consider imposing an “inactive” and/or “dormant” account fees.  Some banks don’t like to charge additional fees as a customer service issue, however, in most cases your “dormant account” customers are not going to be your “good customers”.   By charging $5 or $10 a month, you will eliminate some of the smaller dollar accounts from having to be monitored and escheated.  These accounts will eventually reduce to a zero balance and you can close them out.  You also get some additional fee income in the meantime.  Keep in mind that once an account becomes eligible for escheatment (i.e., in NJ and NY the cut-off date is June 30th), you cannot charge additional dormant account fees.
  6. 6.Close accounts that are at a zero balance for over 30 days.  After charging dormant account fees, and the account eventually may become a zero balance, make it your bank’s policy to leave it there for 30 days and then close it out.  This will reduce the number of zero balance accounts appearing on your dormant account report.

These are just some operational ideas and solutions to assist you with the management of your dormant accounts which could help to reduce the volume of your dormant accounts.  However your institution chooses to handle this process, always make sure that you have an escheatment process in place to comply with the State Laws regarding abandoned property.  If you have any questions regarding escheatment, NY State has a handbook for Reporters of Unclaimed Funds which can be found here: http://www.osc.state.ny.us/ouf/oufhandbook/index.htm#handbook and NJ’s handbook can be found here: http://www.unclaimedproperty.nj.gov/reporting-info.shtml.

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Sharon Geiger

Quality Control Specialist

Sharon Geiger, Quality Control Specialist Sharon has 27 years banking experience, 21 of which have been involved in internal audit. She has extensive knowledge of all aspects of the banking industry, with a particular emphasis on regulatory compliance and identifying risks and controls. As QCR Specialist, she performs Quality Control Reviews to ensure all workpapers and reports are completed in compliance with the firm's standards.



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