This blog was last updated on October 10, 2024
By Freda Pepper, General Counsel, Unclaimed Property
The Supreme Court of the United States rarely addresses unclaimed property law, which made its ruling against Delaware in the 2023 MoneyGram litigation particularly noteworthy. The case focused on the escheatment of MoneyGram checks and similar written instruments. Following months of negotiations, a final settlement was reached on August 28, 2024, which required Delaware to transfer the funds to an escrow account for distribution. Although the MoneyGram litigation settlement involved a specific financial instrument, we believe the Court’s decision will have much broader implications for companies handling similar written instruments.
What’s Next? The Ripple Effect of the MoneyGram Settlement
The most significant impact of the MoneyGram litigation settlement affects companies that handle financial instruments like MoneyGram’s checks, including cashier’s checks, certified checks, and official checks, which consumers use to pay creditors. The Supreme Court, in its ruling, did not clarify whether these types of instruments are considered “money orders or other similar instruments” under the Federal Disposition Act.
Because of this, companies must now decide whether these instruments are sufficiently like money orders based on the MoneyGram ruling. This decision determines whether the unclaimed property should be escheated to the state of incorporation, such as MoneyGram’s state of incorporation in Delaware, or to the state where the instrument was purchased.
Escalating Enforcement: Delaware’s Verified Report and VDA Program Expansion
The ripple effect following the Moneygram ruling is unlikely to stop there. Given Delaware’s payout of over $102 million, we anticipate the state will increase its enforcement efforts to recover lost revenue. Since the initial ruling, Delaware has already expanded its Verified Report Program, sending requests to thousands of companies. These requests ask businesses to verify previously filed reports, identify included entities, disclose policies and procedures, and report any additional unclaimed property, including financial instruments covered by the ruling.
There has been a noticeable increase in mailings to companies, urging them to participate in Delaware’s Voluntary Disclosure Agreement (VDA) program. Companies that choose not to join may face an audit. Recently, Delaware joined a Kelmar multi-state audit without first offering the organization the chance to complete the VDA program. Although a 2017 law allows Delaware to join ongoing audits initiated by other states without a VDA invitation, this practice has rarely been seen until now.
We also expect Delaware to expand its Compliance Review Program, which has seen limited use in the past. However, given the substantial loss, Delaware is likely to increase its efforts in this area to recover revenue. The state may also introduce new strategies to boost unclaimed property collections, especially considering the significant financial impact from the MoneyGram ruling. Companies should prepare for heightened scrutiny as Delaware continues to strengthen its enforcement and compliance programs.
State vs. State: Future Implications for Escheatment Disputes
Emboldened by the outcome of the MoneyGram litigation settlement, we expect other states to increasingly challenge each other over the right to escheat various types of property. A common example is the ongoing disagreement over where gift cards should be escheated, despite clear priority rules. Historically, some states have escheated gift cards based on the place of purchase, which may violate these rules. As more states recognize such violations, those that believe they are entitled to these funds could seek reimbursement, further intensifying interstate disputes over unclaimed property rights.
Third-Party Auditors and the Expanded Scope of Audits
In addition to the states themselves, we anticipate that third-party auditors retained by the states will also be empowered by the MoneyGram litigation and expand the scope of their audits and dig deeper into certain financial instruments that may be impacted by the ruling. For example, Delaware conducts their audits through two firms. Auditors that represent the other states may see this as an opportunity to claim funds that are currently aging to meet Delaware’s five-year dormancy requirement for states that have three-year dormancy periods. This may be especially true with states like New York, which has a large banking presence.
Preparing for Heightened Enforcement Post-MoneyGram Ruling
Due to the ruling and the anticipated actions of the states and the third-party auditors, companies should be on high alert. Indeed, there is even more incentive to “get your house in order.” Tightening up your annual compliance and your policies and procedures will go a long way in being prepared for any increase in enforcement by the states.
Additionally, companies can shield themselves from potential disputes between the states by reporting all name and address information and retaining that information for the record retention period. While we cannot predict exactly how the states will respond to the MoneyGram ruling and settlement, these precautions should go a long way in mitigating risks to companies.
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