Commerce Committee advances adoption of Uniform Special Deposits Act to protect designated funds

Senate Bill 1206, which would adopt the Uniform Special Deposits Act and codify rules for special deposit accounts, received a due-pass recommendation from the Arizona House Commerce Committee by a vote of 8-2.

Committee staff described the bill as adopting a model law from the Uniform Law Commission that governs deposit accounts where entitlement to funds is determined only after a contingency or event. The bill requires a special deposit to benefit at least two beneficiaries, be subject to a contingency, and serve at least one permissible purpose stated in the account agreement.

Timothy Berg, chair of the Arizona Commission on Uniform State Laws, told the committee the accounts are a voluntary tool that businesses and individuals can use to protect funds such as tenant security deposits or staged real-estate earnest-money held pending completion of a condition. “It’s your money that protects it… it’s entirely voluntary,” Berg said, describing examples including apartment security deposits and escrowed portions of real-estate transactions.

Carrie Berman, legislative counsel at the Uniform Law Commission, answered a committee question about what counts as a “permissible purpose,” saying the bill defines that term and includes a non-exhaustive whitelist of illustrative examples.

Several members raised concerns about bankruptcy, creditor avoidance and whether existing trust or fiduciary accounts could accomplish similar safeguards. Berg and other proponents said the act is not intended to protect fraudulent or improper transfers and that accounts set up for an improper purpose would not receive protection under the act.

On the roll-call vote the committee recorded eight ayes and two nays. Members recorded as voting no were Representative Villegas and Representative Cabarrus; members voting aye included Representative Aguilar, Representative Blackmon, Representative Connolly, Representative Diaz, Representative Hendricks, Representative Wilmeth, Vice Chairman Wei and Chairman Wenninger.

Proponents said banks are already set up to handle these deposit types and that the act primarily clarifies and standardizes bank and fiduciary obligations. The committee’s recommendation does not include amendments adopted at the hearing.