Can financial institutions destroy records to avoid unclaimed property obligations? Division of Unclaimed Property v. McKay Dee Credit Union Explained

The Utah Supreme Court’s decision in Division of Unclaimed Property v. McKay Dee Credit Union addresses a critical issue for financial institutions: whether compliance with record retention statutes provides a defense to claims under the Uniform Unclaimed Property Act. The court’s holding demonstrates the paramount importance of the state’s interest in protecting abandoned property owners.

Background and Facts

During a 1995 audit, the Division of Unclaimed Property identified 41 unclaimed checks totaling $3,522.33 at McKay Dee Credit Union. While McKay Dee provided documentation for 19 checks and remitted payment for 15 others, it refused payment on seven checks totaling $1,100.45. The credit union argued these checks were more than seven years old and their records had been legally destroyed pursuant to the Financial Institutions Act and administrative rule 337-9-3, which permits destruction of records after seven years.

Key Legal Issues

The court addressed whether McKay Dee could escape the presumption of abandonment under the Unclaimed Property Act by claiming it had legally destroyed relevant records. This raised the fundamental question of whether the Financial Institutions Act conflicts with or provides a defense to the Unclaimed Property Act’s requirements.

Court’s Analysis and Holding

The Supreme Court affirmed the trial court’s summary judgment for the state. The court found that the state established the statutory presumption of abandonment through evidence that McKay Dee held checks payable to others that remained unclaimed for more than five years. Crucially, the court held that the two statutes do not conflict because the Unclaimed Property Act does not require holders to produce legally destroyed records—it simply allows them the opportunity to rebut the presumption with whatever evidence they have.

Practice Implications

This decision establishes that financial institutions cannot create a “private escheat” by destroying records to avoid unclaimed property obligations. The court emphasized that allowing such a defense would frustrate the Act’s purpose of protecting unknown owners and would create perverse incentives for institutions to delay reporting until records could be destroyed. Practitioners representing financial institutions should counsel clients to comply with reporting requirements within the five-year period before destroying any relevant documentation.