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From Banking and Finance Law Daily, June 9, 2016

Delaware cheats on escheats, 21 other states claim

By Richard A. Roth, J.D.

A coalition of 21 states led by Arkansas Attorney General Leslie Rutledge and Texas Attorney General Ken Paxton have invoked the Supreme Court’s original jurisdiction in a suit complaining that Delaware has been collecting the proceeds of unpaid MoneyGram "official checks" in violation of federal law. According to Paxton, the 21 states could be owed $150 million, and the total amount could reach $400 million if the remaining 28 states join the action. "Arkansas taxpayers have been robbed," said Rutledge.

MoneyGram calls itself a money transfer company. It sells "official checks" that, according to the states’ complaint, are functionally equivalent to traveler’s checks.

The coalition of states and Delaware are contesting what happens to funds when MoneyGram official checks are purchased but never cashed. The case turns on the applicability and interpretation of the Disposition of Abandoned Money Orders and Traveler’s Checks Act (12 U.S.C. §2501 through §2503). The coalition claims that the funds should be turned over to the state where the checks were purchased, under the states’ laws and the federal law. Delaware, on the other hand, claims that as the state where MoneyGram is domiciled, it is entitled to the funds.

Federal law. The Disposition Act applies to "any sum payable on a money order, traveler’s check, or similar written instrument (other than a third party bank check) . . ." The act describes which state has the right to escheat the funds based on three scenarios:

  1. If the company’s records reveal the state in which the instrument was purchased, that state may escheat the unclaimed funds if its laws allow it to do so.
  2. If the company’s records do not reveal the state in which the instrument was purchased, the state of the company’s principal place of business may escheat the funds if its laws allow it to do so.
  3. If the company’s records reveal the state in which the instrument was purchased, but that state’s laws do not give it the authority to escheat the funds, the state of the company’s principal place of business may escheat the funds if its laws allow it to do so, but the state of purchase subsequently may change its laws and recover the funds.

The coalition states claim that while MoneyGram’s records might not identify the purchaser of an official check, they are adequate to show where each check was bought. Also, their state laws give them the authority to escheat unclaimed funds. Therefore, MoneyGram should be giving the unclaimed funds to them.

Delaware’s possible defense. Based on correspondence the 21 states attached to their complaint, Delaware’s position appears to be that MoneyGram’s official checks are not subject to the Disposition Act because they are third-party bank checks, which the act says are exempt.

The coalition characterizes this as "a strained and convoluted reading" of the Disposition Act’s legislative history.

Attorneys: Lee Rudofsky, Arkansas Solicitor General, attorney of record for the plaintiff states.

Companies: MoneyGram Payment Systems, Inc.

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