The Do’s and Don’ts of Dormancy and Escheatment
The Do’s and Don’ts of Dormancy and Escheatment
Since the escheatment requirements for Pennsylvania, New Jersey and Maryland have recently decreased from five years to three years, Banks need to ensure they are escheating all accounts and official checks within the new timeframe. The changed timeframe provides a good opportunity for discussing your bank’s procedures for dormancy versus escheatment.
A dormant account is an account in which there has been no financial activity for a defined period of time (usually 12 months or greater), other than posting of interest. Dormant accounts are more susceptible to fraud issues than active accounts because these accounts are thought to be viewed less frequently by the customer and others (internal or external perpetrators) could fraudulently start to siphon funds from the account if controls to re-activate the account and identify those conducting the transactions are not strong. Once the account is active, bank employees or other third parties have the ability to perpetrate fraud easily due to the customer’s lack of activity with the account.
Escheatment is the process of identifying customer’s deposit (checking, savings, etc.) and time deposit (CD) accounts that are considered abandoned and remitting the funds to the appropriate state if the customer has had no activity on the account in a state specified amount of time (3 years).
Dormant accounts and escheatable accounts differ in the following ways:
| Dormant | Escheat |
|---|---|
| More susceptible to fraud | Monetary penalties may be charged (per day) to the state if not remitted timely |
| Driven by fraud controls | Driven by state law |
| Don’t activate automatically if other active accounts | Can’t remit if customer has other active accounts |
Dormant accounts should not be moved to active status just because the customer has other active accounts with the Bank. Dormant accounts should only be moved to active status when the customer processes a financial transaction through the account that has been validated through the bank’s customer identification and risk management practoces. And while a bank may not escheat a dormant account if the customer has other active accounts with the bank, this does not mean the dormant account should change to active status.
Banks should ensure they are properly handling dormant and escheatable accounts to mitigate possible fraud and inaccurate escheat filing of dormant accounts.
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Natalie Yerger | The Do’s and Don’ts of Dormancy and Escheatment