The California State Legislature has passed legislation giving the Controller the green light to establish a California Voluntary Compliance Program (VCP) for holders of unclaimed property. The bill, A.B. 2280,¹ requires the Controller to waive the 12 percent interest assessment on past due property for eligible holders that participate in the VCP and complete all the program’s requirements.

California routinely assesses 12 percent late interest per year on unclaimed property that is reported late. Although California can waive interest for “reasonable cause,” the Controller’s office has typically applied a high standard for showing reasonable cause.² Almost every other state has some type of formal or informal process that allows a company to come forward voluntarily in exchange for waiver of late interest and penalty. California has long been an outlier in failing to provide such a mechanism. California’s choice not to offer such a process can result in punitive assessments against companies who wish to come forward in good faith to report property. And given the high interest rate, it is not uncommon for the potential interest assessment to exceed the amount of the property in some situations.

A.B. 2280 addresses the disincentive created by the high interest penalty by stating, in Section 1, that the status quo needs changing: “Currently, the Controller’s outreach to and education of holders on their obligations under the Unclaimed Property Law, the threat of an audit, and the 12 percent interest assessment . . . are not sufficient to compel businesses to report past due property.” A.B. 2280 goes on to acknowledge that California’s high interest assessment has not exactly incentivized first-time filers and regular filers alike to report past due property.³

Holders subject to any of the following criteria will not be eligible to participate in the VCP:

• The holder is already under examination in California for unclaimed property compliance or has already received notice from the Controller that they are soon to be under an exam at the time the Controller received the request to enroll;
• the holder is the subject of a civil or criminal prosecution for unclaimed property noncompliance when the holder requests to enroll in the program;
• the Controller has notified the holder of an interest assessment within the previous five years, and the holder has not paid the interest assessment at the time the holder requests to enroll in the program, although the holder can file or refile a request to enroll once they pay the outstanding interest assessment; or
• the holder already utilized the VCP and received an interest assessment from the Controller within the previous five years, notwithstanding the foregoing, if a holder has acquired or merged with another entity within the five-year period and wants to enroll in the program to resolve unclaimed property as a result of the acquisition or merger, the holder may request to enroll in the program.

Under the new legislation, the Controller must waive the 12 percent interest assessment for holders enrolled in the VCP that comply with the following terms and conditions within the required timeframes:

• Enroll and participate in an unclaimed property educational training program.
• Review their books and records for unclaimed property for at least the past 10 years.
• Make reasonable efforts to notify owners of reportable property by mail or electronically no less than 30 days before submitting the required report; and
• complete the reporting within six months after enrollment, with an option to request an additional 12 months (for a total of 18 months), with payment required shortly after reporting.

Before the passage of A.B. 2280, California offered no way for holders to come forward voluntarily and come into compliance with unclaimed property laws without facing the prospect of a potentially large interest assessment. The new legislation allows California to join a long list of states that offer voluntary disclosure agreements (VDAs) on a formal or informal basis to allow holders to become compliant with unclaimed property laws. VDAs are agreements entered into with the states that permit the unclaimed property holder to voluntarily come forward and remit previously unreported or underreported property. These agreements typically contain a waiver of interest and penalties for holders who complete the program in good faith. Delaware, New York, Florida, Georgia, Ohio, and Virginia are among the many states that offer formal VDA programs, whereas other states provide informal processes that accomplish a similar purpose. 

For a company that has identified non-compliance or potential non-compliance, a VDA can be a good way to come into compliance and mitigate the risk of a state audit or examination. In addition to receiving waiver of interest and penalties, the VDA programs are self-directed and allow companies to have greater control over the review as compared to a state audit.

Anti-fraud and cybersecurity considerations

In response to an increase in reports of fraud and theft of valuable digital information, A.B. 2280 would exempt from disclosure under the California Public Records Act⁴ any records obtained by the Controller and third-party auditors during exams that contain an owner’s personal information or business financial records unrelated to property escheated to the state.⁵ These records often contain a trove of personal information that could be used for identity theft or other fraudulent purpose. In 2020, the Federal Trade Commission received 4.8 million fraud and identity theft reports, a 45 percent increase from 3.3 million reports in 2019. “Given this trend,” A.B. 2280 acknowledges, “the protection of personal information has never been more vital.”⁶ 

Personal information and records provided to the Controller and third-party auditors over the course of an examination that are exempted from disclosure under A.B. 2280 include:

• Records related to statements of personal worth or personal financial data, including, but not limited to, wills, trusts, account statements, earnings statements, or other similar records; and
• personal information as defined by subdivision (a) of Section 1798.3 of the Civil Code within records, including, but not limited to, social security number and date of birth, and federal employer identification number, account number, and check number, until the Controller has paid the owner the property in full.^7​

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^1. Assemb. B. 2280, 2021-2022 Reg. Sess. (Cal. 2022) (passed August 17, 2022). 

^2. Cal. Civ. Proc. Code § 1577.

^3. The bill observes that “the current interest rate of 12 percent per annum for past due property is a deterrent to would-be first-time filers because of the potentially large interest assessment they could incur with their first report,” and “is also a deterrent to holders that consistently report unclaimed property.” A.B. 2280, § 1(d), (e). 

^4. California Public Records Act, Cal. Gov. Code, § 1650 et seq.

^5. A.B. 2280, §6. (“The division does not require the disclosure of records that the Controller and third-party auditors obtain the possession of as a result of an examination of records pursuant to Section 1571 of the Code of Civil Procedure, other than records of property that should have been reported to the Controller as unclaimed property.”). 

^6. A.B. 2280, § 1(g).

^7. A.B. 2280, § 7.

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