Senate committee unanimously backs Uniform Special Deposits Act to clarify escrow-like accounts

The Senate Industry and Business Committee unanimously recommended Senate Bill 2123, the Uniform Special Deposits Act, which would clarify the legal status of deposits that bank customers and financial institutions establish for a specific conditional purpose.

Representative Lawrence Clameen, chairman of the North Dakota Commission on Uniform State Laws, told the committee special deposits function “in the nature of a protected escrow account” and are used when a beneficiary’s entitlement depends on a future contingency such as the closing of a real-estate sale or the conclusion of a lease.

The bill defines when an account is a “special deposit,” requires that designation in the account agreement, and limits protections to deposits that serve a permissible purpose (such as governmental, regulatory, commercial, charitable or testamentary objectives). The act is opt-in: banks or credit unions must offer the special-deposit product and customers must agree to the account terms.

Supporters and testimony

Rick Kleberg of the North Dakota Bankers Association said the uniform act removes legal uncertainty that has led many parties to avoid special deposits. Kleberg said the measure protects funds from being swept into a depositor’s bankruptcy estate and gives banks and customers clearer expectations.

Lisa Cruz, commissioner of the Department of Financial Institutions, said her agency supports the bill and that clarity in law should make the product more accessible to consumers. Tony Wyler of the State Bar Association also testified in support, noting the bar’s general preference for uniform laws and the ULC’s drafting process.

Protections and limits explained

Representative Clameen outlined several core protections in testimony: - Identification: A deposit must be designated as “special” in the account agreement, be for at least two beneficiaries, be denominated in money, and be subject to a contingency that is not certain to occur. - Creditor process: The act limits creditors’ ability to attach or enjoin special deposits before the contingency is determined (testimony cited statutory section numbers addressing creditor process and injunctions). - Bank setoff: The act generally prevents a bank from using a special deposit to satisfy unrelated debts, with narrow exceptions for fees, mistaken credits, or necessary accounting offsets. - Bankruptcy: The act clarifies that a depositor’s bankruptcy generally will not pull a properly constituted special deposit into the bankruptcy estate; the account’s protections last until the contingency is resolved.

Committee discussion and examples

Committee members asked whether commonly used items such as tenant security deposits or bonding funds would qualify. Representative Clameen and witnesses said an account would qualify when it meets the statute’s “permissible purpose” definition and the explicit account-designation requirements, but precise application depends on the facts and the contract language. Witnesses emphasized the bill does not force banks to offer the product.

Vote and next steps

Senator Kessel moved a do-pass recommendation and Senator Behm seconded. The committee recorded the following votes: Senator Klein — Aye; Senator Kessel — Aye; Chairman BARDA — Aye; Vice Chairman Bohm — Aye; Senator Engate — Aye. The committee gave Senate Bill 2123 a unanimous do-pass recommendation and identified Senator Klein as a likely carrier to the floor.

Why it matters

Proponents said the bill preserves commercial and consumer expectations that funds placed in narrowly defined escrow-like accounts will remain available to the intended beneficiary once a contingency occurs. They emphasized the bill’s opt-in design and its limited scope — the act does not attempt to rewrite bank-insolvency law, which is primarily federal.

What it does not do

Testimony stressed the act: does not require banks to offer special-deposit products; does not replace federal bank insolvency rules; and does not protect deposits that were voidable or fraudulently transferred under other law.

Next steps

With unanimous committee support, the bill will advance toward floor consideration; committee members asked that interested stakeholders confirm product terms and permissible-purpose examples as they prepare for any floor debate.