Finance Committee pauses consideration of Uniform Special Deposit amendment to UCC bill 206

The Finance Committee postponed consideration of an amendment that would add the Uniform Special Deposit Act to House bill 206, the Uniform Commercial Code measure, after members said the model law is new and needs further vetting.

The amendment would let banks opt to offer a "special deposit" account that holds funds that legally belong to a third party (for example, earnest money in a real estate brokerage escrow or a tenant security deposit) and protects those funds from the depositor’s creditors and from setoff by the bank, provided a signed written agreement and a permissible purpose are documented.

Carl Lisonbee, a lawyer and Uniform Law Commissioner, told the committee, "No bank would be required to do these things. But if it chose to do them, it would ... be helpful to the you and the me of Vermont who might get the benefit of a special deposit." Lisonbee described typical uses as brokerage earnest money, escrow for business sales and client trust accounts used by attorneys, and said the model law creates a statutory vehicle to protect funds that are "somebody else's money" held in an account in another person's name.

Rick Sagle of the Office of Legislative Council said the proposal is not part of the UCC itself but is a separate Uniform Law Commission product promulgated in 2023. "I would recommend testimony. I would recommend a further deep dive into, are there do we have our bridal laws that make contact with this?" Sagle told the committee, urging more time for legislative counsel to vet interactions with Vermont rules and for stakeholder input from bankers and others.

Committee members pressed several practical questions during the discussion: how a third party with a valid claim would learn that funds exist in a special deposit account; whether the accounts could be used to hide assets from creditors (members repeatedly raised that concern and Lisonbee and others said the model law requires the funds be someone else’s money and bars purposes intended to shield the depositor’s own assets); and whether banks would be required to provide notice or documentation to tenants or buyers so those payers know deposits are protected.

Lisonbee summarized the practical effect: the bank would open a special deposit using a contract form, identify the permissible purpose and the contingency that triggers release to the beneficiary, and hold the funds until that contingency occurs. He said the drafting committee included practitioners and former Federal Reserve counsel and that several states have enacted the model law.

Committee members noted that the Uniform Special Deposit Act has been enacted in Washington, Colorado, Delaware, Oklahoma, Nebraska, North Dakota and Utah and is pending in Arizona, Illinois, Massachusetts, Minnesota, New York, Rhode Island, West Virginia and the District of Columbia. Because the proposal is new and had not been the subject of testimony in Vermont, legislative counsel recommended obtaining stakeholder feedback and a more thorough review before adopting it into state law.

The committee directed staff to assemble a list of follow‑up questions and to consult with the committee’s banking counsel (Maria Royal) and other stakeholders; the Finance Committee chair said the item would be deferred until next week so counsel and interested parties could participate. The chair framed the decision as allowing more time for a targeted review while still moving forward on the broader UCC bill 206 on its own schedule.

Next steps: committee members said they will compile questions for staff and counsel, seek input from bankers and other affected parties, and revisit the amendment at a subsequent meeting. No formal vote on the amendment was taken during the session.