This is a question coming up between our Marketing Department and our Operations Department. Marketing doesn't want to charge for dormant accounts, and doesn't want our accounts to go dormant if they don't need to. Marketing has never worked in Operations and doesn't understand the time and effort that goes into dormant accounts. I would like to be able to all parties involved whether it is or is not required to have accounts go dormant (and what Reg states this) and if it is required or just practice to charge a fee. Any and all input, advice, etc would be greatly appreciated on this topic.

Handling of dormant accounts is a risk and internal control issue. Accounts that are not being watched by the customer are more vulnerable to fraud (internal and external) than active accounts.

Banks are expected to assess the risk and put suitable controls in place. The FDIC mentions dormant accounts and suitable controls here.

http://www.fdic.gov/regulations/safety/manual/section4-2.html

We charge for dormant accounts, but more often than not if the customer finally comes in a senior officer will reverse the dormancy charge. I have no problem with that, however, I do take issue when they may want to fudge whether or not an account has gone dormant. I agree that this is a risk/control issue and ultimately these accounts need to be escheated to the state in some cases.

Doug,

If you are reversing charges and the State finds out, you could be in a world of hurt (New Mexico Chap. 7, §7-8A-4.)

Dormancy charge.
A holder may deduct from property presumed abandoned a charge imposed by reason of the owner’s failure to claim the property within a specified time only if there is a valid and enforceable written contract between the holder and the owner under which the holder may impose the charge and the holder regularly imposes the charge, which is not regularly reversed or otherwise canceled. The amount of the deduction is limited to an amount that is not unconscionable.

All of this is State law. In Texas, after twelve months of inactivity, even normal service charges cannot be assessed.

Randy,

Our account contracts have the following verbiage: "If account has no activity after one (1) year the account will go into a dormant status and a fee of $25.00 will be assessed quarterly".

Occassionally, a customer will come in to make a deposit/withdrawal after that period (and assessment) and an officer will decide to refund the dormancy charge, since activity will take place.

After five (5) years of inactivity, the account will be escheated to the account as part of the Unclaimed Property regulations.

When I match this against the statute, then there is a valid and enforceable written contract (the account agreement) and it is not 'regularly reversed'. I'd appreciate your thoughts or if any others handle inactive/dormant accounts any other way.

'regularly reversed' is the key. From what you are saying is if the customer ever shows back up, they can get the fee reversed. From past experience (although in another State) that is a slippery slope that you are on. Dormant fees are usually an all or nothing proposition as the State otherwise feels that you are only charging the accounts that are eventually turned over to the State, thus stealing "their" money. The only time a reversal might happen is because of "bank" error.

If I can just follow-up on one point you made. It's regards the "...state otherwise feels that you are only charging the accounts that are eventually turned over to the state, thus stealing 'their' money". I want to make sure that I'm understanding that if we 'regulary reverse' those charges for some customers and it appears that this effectively means that we are only charging those accounts that get escheated, then the state is losing out on the money we may have collected in dormancy fees.

So it would be advisable not to make it a standard practive to reverse such fees when a customer comes in, but to decide on a case-by-case basis. Additionally, if we lenghthen the time before we assess the dormancy charge (let's say 3 years instead of 1), then we minimize the number of folks who may come in and ask for the dormancy fee refund, correct?

I'd like to hear from others on their fees, timeframes and practices.

Thanks Randy.

"So it would be advisable not to make it a standard practive to reverse such fees when a customer comes in, but to decide on a case-by-case basis."

IMHO - It would be advisable to only reverse the fee if the fee was charged by the bank as a result of a bank error. With the revenue pressure on States that is upon us, don't think the State Treasurer is going to look kindly on any infractions that decrease potential State revenue.

Many other State laws require that the bank not only contract for the fee, but send a reminder notice to the customer a specific time before imposing the fee.

We have recently enacted a "pre-dormant" notification which gives the customer a reminder 45-days before going dormant, thus giving them another opportunity to avoid dormant fees.

Within our Bank's Procedures, dormant accounts are accounts on which there has been no personal customer contact (date of last contact) or activity (date last active) for one or more years. DDA and Savings are considered dormant after one year of no activity and CDs after three years.

I agree with Randy's assessment - waiving dormancy fees is a very slippery slope. The worst case scenario is that the bank would have to refund ALL dormancy fees collected from all accounts. The all-or-nothing that Randy mentions...

Prior to our Pre-Dormant Notification process, we did have times where it was prudent to waive fees centrally by our Dormant Department, if the timing of dormancy and the monthly notice did not afford the customer adequate time to respond. This was clearly outlined within our Departmental Procedures so that there was no question of applying the fee differently for Customer A than for Customer B. We routinely remind branch staff that dormancy fees cannot be refunded.

As far as do you have to charge Dormancy Fees, no. BUT the fee is often what triggers a response from the customer to take action and as Kathleen indicates, the liability and time required to monitor and report these accounts should be compensated for.

I am going to be working on a dormant procedure for my new credit union as they don't have one in place at this time. I like the idea of sending the notice prior to becoming dormant.

Does anyone have any source information regarding CA state rules (if any) on dormant account rules. Or any other guidence?

Thanks,

CALIFORNIA CODE OF CIVIL PROCEDURE
PART 3 OF SPECIAL PROCEEDINGS OF A CIVIL NATURE
TITLE 10 – UNCLAIMED PROPERTY