Report - 2024 01 11 A31505 D263757 Bill Report 5801 Sbr Bfgt Ta 24

Summary

A Senate Bill Report on SB 5801, the Uniform Special Deposits Act, as of January 9, 2024, prepared by non-partisan staff of the Senate Committee on Business, Financial Services, Gaming & Trade. The bill was requested by the Uniform Law Commission, and the report explains the role of the Washington Uniform Law Commission. It summarizes the bill's definition of a special deposit, its statement that neither the depositor nor a beneficiary has a property interest in one, limits on creditor process against the bank, and the instances in which a bank may exercise recoupment or set off. The report lists an effective date of July 1, 2024, no appropriation, and supporting public testimony stating that banks may opt in.

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                             SENATE BILL REPORT
                                   SB 5801

                                       As of January 9, 2024

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

Brief Description: Concerning special deposits.

Sponsors: Senators Dozier, Pedersen, Hunt, Mullet and Wilson, J.; 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.

     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.

Senate Bill Report                              -1-                                             SB 5801
     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 that neither the depositor or the
     beneficiary has a property interest in a special deposit, establishes restrictions around a
     special deposit during a 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.

     Forum. To settle a dispute arising out of a special deposit, the parties to an account
     agreement may choose a forum for settling the dispute in this state regardless of whether the
     account agreement or the parties involved have a reasonable relation to this state.

     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


Senate Bill Report                              -2-                                           SB 5801
     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:
                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.

     Staff Summary of Public Testimony: PRO: This was brought forth a few months ago.
     This bill clarifies some issues around special deposits. It is not requiring financial
     institutions to participate, but to opt in. Creates a clear rule around what a special deposit is.
     This account must be for the benefit of at least two people. This bill does not require
     existing deposits to become special deposits. This will increase confidence in these types of
     deposits. Have not heard any negative effects of this bill. This provides a tool for the
     banking industry to use if they choose to.

     The Special Deposits Act (SDA) controls certain problematic issues regarding special
     deposits. It establishes what a special deposit is and is not. The SDA protects the deposit
     during a depositor's bankruptcy by establishing that they do not have a property interest in
     the special deposit. Under the SDA, if the account is a qualifying special deposit, tenants
     may have rights to their security deposits during a creditor process.

     Additionally, the SDA provides bank rights from a set off right - or recoupment of the
     deposit.


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     This Act resolves mischiefs around the case law. If the bank wants the special deposit to be
     covered on the SDA, it is their choice. No bank is required to offer a special deposit. There
     are real measurable advantages to this bill.

     Persons Testifying: PRO: Senator Perry Dozier, Prime Sponsor; Patrick Guida, Uniform
     Law Commission (Chair of the Uniform Special Deposits Act Drafting Committee);
     Thomas Baxter, Reporter to the Uniform Special Deposits Act Drafting Committee.

     Persons Signed In To Testify But Not Testifying: No one.




Senate Bill Report                             -4-                                        SB 5801


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