We consider an account inactive when there's no activity for 12 months. After that point, we disclose that we would charge a dormant fee. We haven't yet begun charging the fee, though, but are planning to do so in the upcoming months. Can we charge this fee if we haven't communicated the inactivity to our customers? Do we need to tell them prior to charging that the account has become inactive or dormant?

Similarly, if they have another account with us on which they are conducting transactions, does that negate the inactive/dormant status on another account they have with us that they haven't touched for over a year?

What ever triggers such a fee is a decision for the bank accompanied by being sure the conditions under which it will be charged is clearly communicated to the account holder in order to avoid potential UDAAP concerns. The bank deciding to charge a fee and determining under what conditions the fee will be assessed and what conditions qualify the account for escheat to the State are not directly related unless you choose to make them the same.

What is your rationalization for the fee; e.g. do you segregate dormant accounts and monitor their activity?

Some banks use dormancy as an excuse to charge a fee just because no one is looking. It reflects poorly on them and on the industry.

Ken has a good point. In many States, such a fee is prohibited by law, although not in Kentucky.

Thanks Randy and Ken. If they have another account with us on which they are conducting transactions, does that negate the inactive/dormant status on another account they have with us that they haven't touched for over a year? I read in the KRS that if they "had a transfer, disposition of interest or other transaction noted of record in the books or records of the bank", it wouldn't be considered abandoned. Does this mean activity on another account?

The point that I was trying to make is that what it says in the KRS that triggers the requirement for you to escheat the account to the State has no bearing on how you choose to implement a fee on an account. They are apples and oranges. You establish your fee schedule and then you tell the customer when and why a fee is assessed. If you haven't explain in detail how they can avoid this fees, such as your other fees - for example - you must maintain a minimum balance in your account every day to avoid a $10 month service fee, then you have problems. If you don't know what triggers the fee, I can bet your customers don't either which leads to a UDAAP.

Said differently:

Rules for "abandoned" property subject to escheat are established by state law and regulation.

Rules for "dormant" accounts are governed entirely by the rules of a specific bank as properly disclosed under TISA.

From my reading of the KRS, we're required to turn over abandoned property to the state in KY after 3 years. Am I understanding the law correctly?

Yes, unless the account is interest bearing, then the title of the account is changed, it is reported to the State and held for an additional 10 years while earning interest with annual reports.

http://treasury.ky.gov/unclaimedproperty/Documents/2016%20Kentucky%20Holder%20Book.pdf