Committee hears Uniform Special Deposits Act to clarify protections for escrow‑style bank deposits

The Committee on Business and Economic Development took testimony March 20, 2025, on Bill 26‑32, the Uniform Special Deposits Act of 2025. The bill, drafted by the Uniform Law Commission, would adopt a statutory framework that defines and protects "special deposits" — deposit accounts established for a specified purpose where payment to a beneficiary depends on a contingency.

Why it matters: Proponents told the committee that current case law and practice create uncertainty about whether funds held in escrow‑style accounts are protected from a depositor’s bankruptcy, creditor restraints or unrelated bank set‑offs. The proposed act is designed to provide a bright‑line, opt‑in regime so banks and customers can rely on predictable rules when they create special deposit accounts.

Key testimony and provisions: Patrick Guida, chair of the ULC drafting and enactment committee, outlined four core "mischiefs" the act addresses: (1) inconsistent identification of what constitutes a special deposit, (2) treatment of special deposits in the depositor's bankruptcy, (3) premature creditor process that can freeze funds, and (4) bank set‑off or recoupment against deposited funds.

Guida summarized the bill’s test for a special deposit: it must be designated in a written account agreement as a special deposit; be for the benefit of at least one or more beneficiaries; be denominated in money; be for a permissible purpose specified in the agreement; and be subject to a specified contingency. The act also makes clear that insolvency law and other existing voidable transfer rules continue to apply — the statute will not shield transactions that are otherwise fraudulent or voidable under other law.

"Special deposits are banking products that have different characteristics than other deposit accounts like checking or savings deposits," Guida said. He added that the statute is intended to be "minimalist," to preserve contractual freedom while supplying legal certainty.

James McKay, chair of the District of Columbia Uniform Law Commission, testified in support and noted the measure is opt‑in: banks and customers must elect in writing to have a special deposit governed by the act. McKay said the act has been enacted in five states (Colorado, Delaware, Nebraska, Oklahoma and Washington) and introduced in several others.

Practical examples cited in testimony included tenant security deposits held pending lease termination, escrow funds in real‑estate closings and settlement funds for class actions. Guida and McKay said the act would prevent funds from being swept into a depositor’s bankruptcy estate, limit injunctive freezes by third‑party creditors on a bona fide special deposit, and restrict a bank’s ability to use set‑off for unrelated depositor debts.

Next steps: The committee received the technical explanation and may consider the measure for further action; both witnesses asked the committee to report favorably to reduce litigation risk and provide certainty to banks and customers.

Ending note: Testimony emphasized the act’s opt‑in design, narrow scope addressing four legal uncertainties, and the intent to preserve ordinary contract rights while preventing opportunistic creditor or bankruptcy outcomes that would frustrate parties’ expectations for escrow‑style accounts.