Loyalty glossary · 11. Legal and compliance (15)
Unclaimed Property Law
Unclaimed property law requires companies to report and remit abandoned property, such as dormant bank accounts or uncashed checks, to the state after a set period. For loyalty programmes, some states treat unredeemed points as unclaimed property, forcing escheatment of their estimated value.
Unclaimed property law forces a loyalty programme to treat dormant points as abandoned cash, but points are not cash and never were. Most statutes impose a dormancy period of 3 to 5 years, after which the state demands remittance of the points' estimated value. That estimate is always an arbitrary number, because the points have no fixed redemption value until the member chooses a reward.
The accounting treatment exposes the double counting. Under accrual accounting, a programme records a deferred revenue liability for the fair value of unredeemed points. Unclaimed property law then requires a second liability for the same points, as if the first did not exist. The state takes cash, but the programme still owes the member if the member later redeems, because escheatment does not extinguish the member's claim.
Active-member-rate and activity-based-qualification show why dormancy is a poor proxy for abandonment. A member can be inactive for 24 months, then redeem a large reward after accumulating points over several years. Activity-based qualification means points are earned by engagement, not by deposit, so the member's intent is not to abandon them but to accumulate them. The law treats a long accumulation period as abandonment, which is backwards.
Programme A has 10 million points outstanding, each valued at 1 cent on redemption, so the book liability is 100,000 dollars. The state's dormancy rule assumes any account with no activity for 36 months has abandoned its points, and 20 percent of the outstanding points sit in such accounts. The state demands 20,000 dollars. But the programme's own redemption data shows only 25 percent of those dormant points are ever redeemed, meaning the true expected liability is 5,000 dollars, not 20,000. The law forces an overstatement of 15,000 dollars.
The correct treatment is to let the programme's own expiration policy and breakage recognition handle unredeemed points. Points that expire after a stated period are not unclaimed property; they are a contract term. Points that are never redeemed but remain valid are a liability, but that liability is already measured under the programme's accrual and breakage assumptions. Escheatment adds a third layer that none of those models anticipate.
Operators should not wait for a state audit to discover this mismatch. Model dormancy periods against the active-member-rate and set a valuation per point at marginal cost, not face value. Then accrue a separate escheatment reserve only for the states that insist on it, and treat that reserve as a cost of doing business in those states. That is the only defensible position under current law.