Washington Senate Bill Report SB 5801 (Jan. 4, 2024)

Summary

A Senate Bill Report on SB 5801, an act relating to the uniform special deposits act, as of January 4, 2024, prepared for the Senate Committee on Business, Financial Services, Gaming & Trade ahead of committee activity on 1/09/24. The bill is sponsored by Senators Dozier and Pedersen by request of the Uniform Law Commission. The report summarizes the Uniform Special Deposits Act, which defines a special deposit, establishes that it is a debt owed to the beneficiary, and provides that creditor process such as garnishment is not enforceable against the bank holding it. It also limits a bank's right of recoupment or set off against a special deposit to listed instances and addresses new and existing account agreements. The report lists no appropriation and an effective date of July 1, 2024.

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                             SENATE BILL REPORT
                                   SB 5801

                                       As of January 4, 2024

Title: An act relating to the uniform special deposits act.

Brief Description: Concerning special deposits.

Sponsors: Senators Dozier and Pedersen; by request of Uniform Law Commission.

Brief History:
     Committee Activity: Business, Financial Services, Gaming & Trade: 1/09/24.


                                      Brief Summary of Bill
           • Provides statutory clarity on what may be considered a special deposit.
           • Establishes that a special deposit is a debt owed to the beneficiary.
           • Establishes certain restrictions around a special deposit during a creditor
             process.
           • Clarifies a bank's rights for seeking recoupment on a debt when holding
             a special deposit.


SENATE COMMITTEE ON BUSINESS, FINANCIAL SERVICES, GAMING & TRADE

     Staff: Kellee Gunn (786-7429)

     Background: Special Deposits. A special deposit is an account at a bank that holds funds
     that may be paid upon the occurrence of one or more contingencies, such as trust fund
     accounts.

     Washington Uniform Law Commission. The Washington Uniform Law Commission
     (WULC) consists of seven members and was established by state statute. The WULC
     belongs to the National Conference of Commissioners of Uniform State Laws—also known




     This analysis was prepared by non-partisan legislative staff for the use of legislative
     members in their deliberations. This analysis is not part of the legislation nor does it
     constitute a statement of legislative intent.

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     as the Uniform Law Commission, or ULC. The duty of the WULC is to identify laws in
     which uniformity of laws among the states and other jurisdictions is desirable and
     practicable and the United States Congress lacks jurisdiction to act, or it is preferable that
     the several states enact the laws. Annually, the WULC recommends to the Legislature these
     uniform acts for approval and adoption.

     Summary of Bill: The Uniform Special Deposits Act (Act) is established. The Act
     provides statutory clarity on what may be considered a special deposit, establishes that a
     special deposit is a debt owed to the beneficiary, establishes restrictions around a special
     deposit during a bankruptcy or other creditor process, and clarifies the rights of a bank to
     seek recoupment for a debt—or a right to set off—when holding a special deposit.

     Special Deposit. A special deposit is:
        • a deposit of funds in a bank under an account agreement;
        • for the benefit of at least two beneficiaries, one of which may be the depositor;
        • denominated in a medium of exchange currently authorized or adopted by a domestic
           or foreign government;
        • for a permissible purpose stated in the account agreement; and
        • subject to a contingency.

     A bank is obligated to pay a beneficiary of a special deposit unless the account agreement
     provides otherwise. The obligation to pay the beneficiary is excused if the funds are
     insufficient. A beneficiary may elect to be paid the funds available if insufficient or, if there
     is more than one beneficiary, a prorate share of the funds available unless stated otherwise
     in the account agreement.

     Property Interest in a Special Deposit. Neither the depositor nor a beneficiary has a property
     interest in a special deposit. Any property interest is only in the right to receive payment if
     the bank is obligated to pay the beneficiary. Any property interest is determined by other
     law.

     Creditor Process Not Enforceable Against a Bank. Creditor process, such as garnishment,
     lien, or similar process issued by or on behalf of a creditor, is not enforceable against the
     bank holding the special deposit. The amount obligated to a beneficiary may be enforceable
     against a bank only if the process is served to the bank, provides sufficient information to
     permit the bank to identify the depositor or the beneficiary from the bank's books and
     records, and gives the bank a reasonable opportunity to act on the process.

     Injunction or Similar Relief. A court may instruct a bank not to pay a beneficiary or
     depositor if the payment constitutes material fraud or facilitates material fraud.

     Recoupment of a Debt by a Bank. A bank may not exercise a right of recoupment or set off
     against a special deposit except for the following instances:
        • an account agreement authorizes the bank to debit the special deposit:


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               1. when the bank is obligated to pay a beneficiary;
               2. for an overdraft fee in the special deposit account;
               3. for costs incurred by the bank that relate to the special deposit; or
               4. to reverse an earlier credit posted by the bank to the balance of the special
                  deposit account, if the reversal occurs warranted under law of this state
                  regarding mistake or restitution; and
         • the bank holding a special deposit may exercise a right of recoupment or set off an
           obligation to pay a beneficiary, even if the bank funds payment from the special
           deposit.

     Application to New and Existing Special Deposits. Account agreements executed on or
     after the effective date are subject to the act. Deposits under an account agreement made
     before the effective date may be subject to the act if all parties agree and the special deposit
     satisfies the statutory requirements to be considered a special deposit.

     Appropriation: None.

     Fiscal Note: Not requested.

     Creates Committee/Commission/Task Force that includes Legislative members: No.

     Effective Date: The bill takes effect on July 1, 2024.




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