Memo in support of the Uniform Special Deposits Act

SUMMARY

The Commercial Law & Uniform State Laws Committee issued a report supporting the Uniform Special Deposits Act. The proposed legislation will create a versatile new type of bank account – a “Special Deposit” – to ensure the safety and certainty of trillions of dollars of common transactions engaged in by New York consumers and businesses every day. The Act will permit depositors and their banks to “opt-in” to clear statutory rules that will protect a Special Deposit from premature creditor interference or the bankruptcy of the depositor. In particular, the Act will give banks and their customers a flexible payment mechanism to ensure safe, secure and efficient payments to account beneficiaries. It will also protect all parties from uncertainties under existing law, including depositor bankruptcy risks and premature creditor claims. The Act will also enhance New York’s status as a preeminent commercial jurisdiction by giving banks a valuable new service to offer their customers and by avoiding the loss of business to other states that may adopt the Act.  The Committee first supported the Act in a 2024 report.

2025 NYS Legislative Agenda Item

BILL INFORMATION

A.5345 (AM Hunter) / S.4323 (Sen. Krueger) – Enacts the uniform special deposits act to provide for special deposits in the state of New York in a manner uniform to other jurisdictions (NYS 2025-26).

OUTCOME

Signed by the Governor, Chp. 583 – December 5, 2025

REPORT

REPORT ON LEGISLATION BY THE COMMERCIAL LAW & UNIFORM STATE LAWS COMMITTEE

A.5345 (AM Hunter)
S.4323 (Sen. Krueger)

AN ACT to amend the banking law, in relation to enacting the uniform special deposits act

Uniform Special Deposits Act

THIS BILL IS APPROVED

BACKGROUND

The New York City Bar Association, through its Commercial Law & Uniform State Laws Committee supports the enactment of the Uniform Special Deposits Act (the “Act”) in New York State. The Act will create a versatile new type of bank account – a “Special Deposit” – to ensure the safety and certainty of trillions of dollars of common transactions engaged in by New York consumers and businesses every day.[1] The Act will permit depositors and their banks to “opt-in” to clear statutory rules that will protect a Special Deposit from premature creditor interference or the bankruptcy of the depositor.  By eliminating unnecessary litigation risks that exist under current law, the Act will make Special Deposits much more useful and certain for the funding of transfers where final disbursement of the funds is contingent on some future event. In particular, the Act will:

• Give banks and their customers a flexible payment mechanism to ensure safe, secure and efficient payments to account beneficiaries;
• Protect all parties from uncertainties under existing law, including depositor bankruptcy risks and premature creditor claims; and
• Enhance New York’s status as a preeminent commercial jurisdiction by giving banks a valuable new service to offer their customers and by avoiding the loss of business to other states that may adopt the Act.

WHAT THE BILL DOES

The Act defines a Special Deposit as a deposit of funds under a written or electronic account agreement between a bank and its depositor for the benefit of two or more beneficiaries (one of which can be the depositor) upon the occurrence of a specified future event. The Act is an “opt-in” statute; it only applies if a bank and its depositor expressly agree that it will apply. By its terms, the Act ensures that Special Deposits can only be used for permissible purposes and cannot be used for intentional fraudulent conveyances or to evade existing law.

The Act’s broad terms and opt-in structure give banks and their customers the ability to use Special Deposits to fund a host of transactions, both large and small, while minimizing risk of premature disruption by third parties, and providing a useful alternative to escrows or letters of credit. Some of the most important uses of Special Deposits will be:

• to hold security deposits for residential and commercial leases and other real estate transactions;
• to meet corporate payroll and pension payment obligations;
• to protect payments of interest and principal received by a trustee or other representative for the benefit of holders of publicly traded notes and bonds and distributable to the holders;
• to facilitate payment systems operators’ funds transfers between financial institution participants;
• to pay commissions to consignors or commission merchants on sales of goods by retailers;
• to plan for the special needs of family members;
• as a closing deposit to secure the accuracy of representations, warranties and covenants in a mergers and acquisitions transaction; and
• in general, any transaction where an escrow is used today could be benefitted by a special deposit instead of or as a supplement to an escrow.

Trillions of dollars of such transactions involve New Yorkers every day.

Current law in this area is non-statutory and consists of a sometimes unclear and inconsistent body of antiquated case law.  Under the common law, it is unclear when a deposit is deemed “special,” which gives rise to unnecessary litigation as to the parties’ intent, when a beneficiary has rights to the deposit, and whether the funds on deposit are “trust funds” or general assets of the bank. For example, many people assume that funds deposited under a standard “escrow agreement” will be safe from creditor claims or bankruptcy events, but under current law those funds may not be protected.

The Act will codify the law and cure deficiencies in existing law in four important ways.  First, it will clarify which bank accounts are entitled to special protections to safeguard depositors and beneficiaries. Second, it will protect banks and beneficiaries in the event the depositor goes bankrupt. Third, it will protect all parties from premature or otherwise inappropriate claims by creditors. Fourth, it will enforce banks’ duty to pay and protect Special Deposits from most bank setoff and recoupment claims.

These reforms will make Special Deposits attractive to banks, depositors and beneficiaries alike. The Act will encourage banks to offer a Special Deposit product because, unlike special deposits under the common law, a Special Deposit under the Act does not create any fiduciary duty to a depositor or beneficiary. The Act will benefit depositors and beneficiaries because it gives them the power to enforce a bank’s duty to pay pursuant to the terms of the Special Deposit account agreement.

The Act does not replace existing law, but only supplements the law by allowing banks and their customers to take advantage of Special Deposits if they choose to do so. Except as otherwise provided, the Act preserves freedom of contract and application of general rules of commercial law.

The Act has been promulgated by the Uniform Law Commission after three years of study and analysis by banking and commercial law experts across the country, including many New York practitioners. It has already been enacted in Colorado, Delaware, Oklahoma and Washington and has been introduced in the legislatures of other states.[2]

While enactment of the Act in New York costs taxpayers nothing, it will afford all New Yorkers the benefits and protections of a valuable new financial tool and attract more commercial transactions to New York. It will also preserve New York’s position as a preeminent commercial jurisdiction and avoid the loss of business to other states that enact the Act. Those benefits to New York may disappear if New York is not one of the first states to adopt the Act. We therefore urge the Legislature to pass, and the Governor to sign this critical piece of legislation into law.

Commercial Law & Uniform State Laws Committee
Gizem Alper

February 2025