Online Resources Corp. has restated its financial results for the last seven quarters, cutting its earnings by a total of 11 cents a share, after changing its policy on unclaimed bill payments.
Matthew P. Lawlor, the banking outsourcer's chairman and chief executive, said in a press release issued late Monday: "When we developed our unclaimed-payments policy about two years ago, there were no clear precedents or applicable regulations governing service providers. As the electronic payments industry has evolved, so must our operating policies, and we believe this new policy is better suited to today's environment."
Chief financial officer Catherine Graham said unclaimed payments now must either be returned to the paying banks or sent to the appropriate state escheat fund if the funds are unclaimed for 180 days. Banks often prefer not to have to deal with unclaimed funds, Ms. Graham said in an interview Tuesday.
"The problem is technology is outpacing the law, and unclaimed bill-payment funds do not fit neatly into any of the state escheat categories," she said. "One of the reasons we did this is that given the discussions that are being had in the legal community regarding this, we anticipate over time the escheat categories will be expanded and cover these funds."
The old policy had been instituted in the third quarter of 2003. Unclaimed funds were used to offset costs, and a small reserve was kept on the books to cover the liability if a claim was ever made on the funds.
The Chantilly, Va., company had adopted the old policy after consulting legal counsel, bank clients, and auditors, Ms. Graham said. The unclaimed payments were less than one-tenth of 1% of its payments over all and were generally paper checks.
In Online Resources' 10-year history, $2.2 million of "stale checks" have gone unclaimed, Ms. Graham said. The average check has been about $50. The company researches unclaimed checks for $200 and above, but it is not cost-effective to do so with checks of less than $200, she said.
It had kept about 5% of the $2.2 million in reserve in case a claim was made. "It happens rarely. And that's why we had such a small reserve," Ms. Graham said.
Craig A. Peckham, an analyst at Jefferies & Co. Inc., said Online Resources' rivals have similar unclaimed-payments policies.
"From a financial standpoint, this has very modest impact," Mr. Peckham said of Online Resources' move. "The impact on earnings prospectively will continue to diminish, and that is a simple result of the fact that the sheer number of paper checks that this bill-payment engine produces continues to decline" as the company's electronic payment rate goes up.
