SmartTranscript of Senate Finance - 2025-04-10 - 3:55PM

[Chair Ann Cummings]: We're live. We are what? [Carl Lisman]: Hello? [Chair Ann Cummings]: We are back from an unscheduled try. Taken. To a spreadsheet. And we have one more topic. It's exciting, which is h two zero six. This is the uniform commercial cuff. Rex, you I've got you first, but you were going to I only have you on the agenda. Yeah. I do. [Rick Siegel]: I believe the website, Rick Siegel office of Legislative Council. I'm gonna defer my time to Carl Busman who [Carl Lisman]: Okay. [Rick Siegel]: Will better be able to educate the committee on the amendment. [Chair Ann Cummings]: Alright. And this is an amendment or a a possible amendment. Well, not bad. [Carl Lisman]: Not bad. It's nice to be back. [Chair Ann Cummings]: And we're taller than you guys. [Carl Lisman]: Doesn't take much to be taller than you. I used to be taller than my son. My name is Carl Lisman. I'm a lawyer practicing Burlington. I've been a uniform law commissioner for a long time. When I was here with you folks on the UCC bill last week, I mentioned to the chair during the presentation, there had been comment about how we as as Vermonters go about doing our business without really realizing what the underpinning might be in the law for what it is that we're doing. And that inspired me to say to her that we have a relatively recent project that we've completed in twenty twenty three called special deposits. And she suggested that we bring it back for your consideration. What are we talking about? We're talking about a product that a bank could offer in Vermont if it's a claim in the law. No bank would be required to do these things. But if it chose to do them, it would it would be helpful to the you and the me of Vermont who might get the benefit of a special deposit. So step point number one is that no bank is required to do this. It would just be another arrow in its quiver of products that could offer its customers. What is a special deposit? It's a deposit that's special. Why is it special? Because it's theoretically somebody else's money that you're putting into your into account in your name. Why would you why would you do that? Well, suppose the chair came to me and said, I trust you. I wanna give you five hundred dollars to put it into account. I want you to hold it. And on the occurrence of some event that may happen in the future, I want you to pay it out to somebody else. And if that event doesn't happen, give it back to me. There's more to it than that. That's pretty much what we're talking about here. Problem is that there are other people who might have an interest in an account that I opened in my name, even though it wasn't my money that's submitted to the account. One of those are my creditors. If I'm not paying my bills as they come through, a creditor can garnish, attach my bank account. I might say, wait a minute. That's not my money. You can't take that money out of that account. That's the chair's month. We don't have very good law in Vermont or anywhere in the country on that. To be clear, the fact money that was hers shouldn't be reachable by my creditors. And if I have a bad financial reversal and I have to file in bankruptcy, the trustee in bankruptcy may say, There's five hundred dollars in his account. We can use that to pay off his creditors, but not my money. But it's not there. And there's a third category here, somebody who might have an interest in the money that I have in the bank account bank. And [Chair Ann Cummings]: that's a bank. [Carl Lisman]: Banks have lights of set off. If you if I go to Bank of Montpelier to borrow the my house and I sign a note and give the bank a mortgage, and I have a savings account at the Bank of Montreal, and I stop making my mortgage payments, the bank technically has the right to grab whatever I have as the right to set up to pay my mortgage payment. So that's really the impetus of where this came from. The original person who suggested this was a lawyer for the Federal Reserve Bank of Cleveland who came to the InterContinental Commission, said, you know, we all assumed. And you know what happens when you've assumed? There ought to be a law. We had a study committee that looked into it. We went to a drafting committee, a lawyer who chaired the drafting committee, a commissioner from Rhode Island who's a bank lawyer. We're very lucky to get as our reporter the fellow who does most of the research and technical writing had just left the Federal Reserve of New York as its general counsel to go into private practice, one of New York's most prestigious firms. This law protects money that's in a bank account, in a bank that will allow this type of account by ensuring that nobody can take money out [Chair Ann Cummings]: of that [Carl Lisman]: account unless it's the beneficiary of that account. And how do you go through that process? You walk into the bank and you say to the bank, the chair gave me five hundred dollars. It's not my money I wanna put in an account. I wanna be sure that it's not accessible to my creditors, and I wanna be sure that the bank can pay the money out when it's time for the beneficiary to receive it. Of course, I could be the beneficiary as well as the depositor. Complicates this a little bit, but not much. So what will happen is this bank will have a contract form just like it has now with a custodial account or even just a passport account. And the the bank will open up the account, identifying it as a special deposit account. That account has to be signed by me as the depositor and by the bank. It has to be for a purpose that the statute says is permissible as in section sorry. I don't remember these for the loan. Section [Rick Siegel]: On your bill, sorry. It's twenty nine fifty five in your bill, pay seven twenty nine fifty five. [Carl Lisman]: Okay. Those purposes are are specified. They're pretty objective. They're pretty obvious kinds of things that people might wanna use these special deposits for. And as long as there is a written agreement signed, it's for a committed purpose, that account will validly exist. Then the only other issue is how does the beneficiary, the person in this case, chair, get her hands on the money? And that is upon the occurrence of the contingency that's described in the agreement that's signed that's been the depositor in the bank. [Chair Ann Cummings]: Okay. And Chris talked about this. She talked about real estate brokerage account. I make a deposit. I put it in I I pay the realtor, the broker. Not necessarily the sales realtor, the salesperson takes the deposit. It goes in the brokerage account since they're until the day of closing or until everything falls apart, and then the deposit or a portion thereof goes back. And when you get to closing, it comes out of the brokerage account. I know attorneys have similar accounts. Is that what would be covered in Europe? [Carl Lisman]: That's a very common example of that. [Chair Ann Cummings]: Yeah. [Carl Lisman]: We assume that when you write your thousand dollar check as earnest money to buy a house that the broker deposits in the mandatory deposit count that the broker has under real estate rules, that no creditor of the broker can get their hands on that money or the trustee and bankers or the bank. But I don't think we have any law in the law that says that, and that's what this account this this law would do. It's no different than when I wanna sell my business And a buyer comes to me and says, I will give you x number of dollars for your business. Let's write up a contract. It's a pretty sophisticated transaction. We might use an escrow agent, otherwise not licensed by the state of Vermont. That escrow agent might be required to put the money in a in an account of the loan interest, goes into the escrow agent's account at the bank. If it's not a special deposit account, There's no law in Vermont that says that the creditors of the escrow agent can't grab that money. We just assume that that's an assumption we shouldn't be made. [Chair Ann Cummings]: Not in this day, Mitch. [Carl Lisman]: No. David, a question. Is it conceivable [Speaker 3 ]: that the owner of the money may want that money to be in an account that is secreted from the general public because it's the money that they got from selling their Enron stock or what have you. [Carl Lisman]: Yes. It's very possible, and that's why this standard of the permissive permissible purpose is in here. [Speaker 3 ]: And how does it how does the the permissible how is it how is it expressed? Does it say you can't put stolen money in here or words to that effect? It almost [Carl Lisman]: a governmental regulatory, commercial, charitable, or testamentary objective of the party stated in the account agreement. It includes as an objective to hold funds in escrow, including for a purchase and sale, lease, buyback, or other transaction as a security deposit for a tenant that may be distributed with a person as remuneration, retirement, or other benefit or compensation under a judgment, a class action court decrease, for distribution to a fine class of persons after identification of the class and their interest in the funds. Goes on and on and on. But the list here is refers to this as a white list to make clear that these are all permissible Yes. Purposes. If if what you're talking about, if you went to the bank, said I won't open up a special deposit, first thing the bank would ask is what's the purpose? And they would go through the list to make sure that that was permissible. But the second thing is there has to be a contingency. There has to be an event, the occurrence, or the nonoccurrence of which triggers the entitlement of the beneficiary to get This is a hands on them. [Speaker 3 ]: Yes. Yes. The subject is indicted. [Carl Lisman]: I think that that probably is gonna pass, but that's a good point. You can't you can't use it. Mhmm. For proper purpose. [Speaker 4 ]: I got I have lots of questions, but I I don't think I wanna ask them. Instead, I wanna just ask. This is uniform commercial code. So this is adopted elsewhere. We're not creating new [Carl Lisman]: And this is not the commercial code. This is another uniform law project. It's uniform special deposits law. Thank you for saying that. I'm supposed to say it even has already been adopted in Washington State, Colorado, Delaware, Oklahoma, Nebraska, North Dakota, and Utah, pending in Arizona, Illinois, Massachusetts, Minnesota, New York, Rhode Island, West Virginia, and the District of Columbia. It's a new one one of our newest products, so it's just starting to gain some of that. [Chair Ann Cummings]: New so universal Uniform commission has your values on this, but it has not [Carl Lisman]: Oh, no. The uniform law commission has promulgated. We are now all of our commissioners are now going out to the legislatures and all the states are saying, here's a new law that we've got for you if you're interested. Okay. [Chair Ann Cummings]: So it's the unit it's the universal. It's not part of the commercial commercial. But it is part of the universal law logicians who also does the commercial code. [Rick Siegel]: Right. [Chair Ann Cummings]: It's part of your now recommendation for so we could tinker with this, but [Carl Lisman]: we shouldn't. Probably not. And and may I say, it's it's more important to me that the commercial code two zero six as it was brought to you get enacted [Speaker 3 ]: Okay. [Carl Lisman]: This year even if it means pushing this off till next year. Okay. [Speaker 4 ]: So I'm not against this, but since it isn't part of the universal I am gonna ask something by by any question. So I'm I'm worried that that some of what you said that this would be a way to to shield, to hide. If if I put this money in this account, is this only gonna stop the the account or the company, the bank that has that account from from using those resources if if they become insolvent? But but I still have to report that. Right? [Rick Siegel]: It's not a place for [Speaker 4 ]: me to to shield assets if I were to go bankrupt. You have [Carl Lisman]: It can't If it's not your money It's not your money. Then your bankruptcy estate shouldn't be able to [Rick Siegel]: have its hands on that money. So if it's my money, I'd put it in [Chair Ann Cummings]: a No. It's not your money. Okay. [Carl Lisman]: But if you put the money here's a simple example. You have five thousand dollars hanging around Me. You K. In one dollar bills. And you think to yourself, boy, I'm a little worried about my financial condition right now. So if I can find a way to hide this money, I could dig a hole and put it in the ground in my backyard. You could put it in the backyard. Probably not a prudent thing to do. Uh-huh. Maybe I can take it to a bank and get them to put it in an account that will shield it from my creditors. You can't do that under this law. [Speaker 4 ]: This law would not allow that. [Carl Lisman]: Would not allow that. That would not be a permissible purpose. [Chair Ann Cummings]: K. You'd have to say somebody else's money. It's somebody else's money. [Carl Lisman]: Oh, I remember Scott. For my money. The account? I think it's open. But if you didn't tell [Speaker 3 ]: the truth when the account was opened, that's the purpose. So you deposit it. [Rick Siegel]: Could the [Speaker 3 ]: purpose be done in effect? So generally that there isn't any specificity required or if it will make as to I I'm [Carl Lisman]: I'm fighting I'm I'm putting the [Speaker 3 ]: money in here in order to ensure that it is safe, that it is protected against threats. [Carl Lisman]: So like an escrow account. Exactly. Okay. But that escrow account could be my money. It could be your money. Mhmm. But the person who's opening the account is saying this money can't be used to satisfy my creditors because it's not my money until the till the occurrence of the contingency. Mhmm. And the bank will know what that contingency is because that'll be listed in the agreement that the depositor makes with the bank. Mhmm. No bank I think no bank is ever gonna say, let's allow you to do that when the purpose of the deposit is to protect your money from your creditors. [Speaker 3 ]: Okay. The beneficiary's money. You're opening an account on that. The beneficiary? [Chair Ann Cummings]: The depositor can be the beneficiary as well. Alright. Frequently, there's more than one beneficiary. If you're a real estate brokerage or a lawyer's account, you will have multiple locally, if you're a successful business, you will have multiple deposits or contract deposits on real estate you're selling. That money comes from the potential buyer. When the sales close, that money comes from the brokerage account and is written out and given to the seller. And I have to get a similar check from the broker out of his account and that the selling agent brings to closing. But if shut down. But my broker happens to always book you a couple million bucks. The bookie can't access the brokerage account because it's not the realtor's money. It's the buyer or the seller's money. It's it's the buyer's money. Or So [Carl Lisman]: in Vermont, the real estate commission says to licensed brokers and salespeople, you have to have an account in which you deposit deposits. Mhmm. The rules of the supreme court tell us that for lawyers, you have to have a separate account in which you have high trust funds. Still, there's no law right now that says that my creditors can't go to my IOLTA trust account and try to grab that money claiming that it's money that I have. Now I'm not allowed to put money in my own trust account by rule in the Supreme Court. This will clarify not only for lawyers and counsels, but for every other transaction where somebody is entrusted with somebody else's money. That money is protected from the creditors of the person who made the deposit. It's it's a simple little law. [Chair Ann Cummings]: I think we've gotten the questions as to what the law does. I think we may have some questions about should we do it or where is it, and I'm gonna get to our legal counsel for that one. [Rick Siegel]: Good afternoon. Rick Sagle, office of Legislative Council. And just a little bit, I think it's it's clearer than it was maybe right away, but this is an amendment to two zero six, the UCC bill, uniform commercial code bill, which is fairly straightforward. We've had the UCC for several decades now. We've amended the UCC several times in the last twenty, thirty years. Twenty fifteen was the last major amendment. So this amendment, the Uniform Respectable Deposit Act, is not the UCC, but it's from the same ULC, the same entity that comes up with these model laws. They have several of these that they produce for state legislatures to consider. Vermont has several other ones that they've adopted. So this one, the Uniform Special Deposit Act, is newer, as Carl talked about. I think seven states have passed it. I think it was promulgated in twenty twenty three. So it's it's a big under roll around to various states. I think Carl explained it well. My I I have a few concerns about it, mostly that it it is so new and that you haven't taken testimony over it. With the UCC, I was confident that, you know, this is not a controversial event we're talking about. And not that this is controversial. We don't make that clear. But because I haven't had time to fully vet it, Maria Royal, who is more our best counsel for banking, she's had a little bit of time, but not enough time to vet it. So my recommendation is if you wanna take it up, it's it's your, obviously, your call. I would recommend testimony. I would recommend a further deep dive into are there do we have Vermont laws that make contact with this? I don't think we do. But, again, I didn't have time to fully make sure do we have something. I know we don't have something that does this. I know that much. We don't have as Carlson, we don't have laws that protect these special deposits. And I don't think that you'd have the the hidden money. I'm sure the ULC was aware of that, talking about a a person that's trying to hide money from creditors. [Speaker 3 ]: That I don't think this bill does. The bill [Rick Siegel]: is meant to protect protect your money so that if you give your realtor or if you give the thousand dollars in escrow for your house or your your your tenant and you put your deposit two thousand dollars down for your apartment, that that is your money, technically, but it's in the landlord's account. Landlord is god goes bankrupt. That money, yes, could be taken by a creditor. Right? This law, if and it's also opt in. So even this law were enacted, the bank and the depositor would still have to agree that this is a special deposit. The tenant may not even know that that is a protected deposit. Right? Right. So I I think maybe the bill would also suggest maybe some literature that would be required to produce by tenants or by banks that, hey. This money is under a special deposit. These are things I'm thinking about that Yeah. [Chair Ann Cummings]: Right now, as a tenant, I wouldn't know. I've got quite a few thousand dollars in security deposits down. My landlord always says, okay. He's got a gambling problem. I could find I'm I'm saying, well, you know, I'm gonna stay here for a year, and then, you know, I'm I'm gonna get a promotion. I'm gonna move next door up to a nicer apartment. I know right where I wanna go. And I'm gonna use my security deposit on this apartment. I'm just gonna transfer it over to that one. Right. Only the bookie comes in and takes all the money. I wouldn't I wouldn't right now. That money I have no guarantee, right, that that money's gonna be there. The the the owner can go bankrupt. The owner can spend it. Yeah. [Rick Siegel]: And the tenant has arrived for the month, and they can sue the landlord. [Carl Lisman]: Thank you. If if [Rick Siegel]: if landlord's bankrupt, then that kind of that so the the the there is I see the legitimate purpose behind the bill, and I see why states are adopting it. I don't see any harm, but I I think it'd be a disservice, not say for our testimony over it. Yeah. Well, it [Speaker 3 ]: it Baggage. Question. So how does the the person who is owed money by the beneficiary of this account, even though the account exists and the money is there, in the event, for example, he brought an action against that that beneficiary to collect money? [Rick Siegel]: The creditor or the the the beneficiary of the account? The beneficiary of the account. Well, so currently, it's still an issue. Right? If you're if you're a tenant or if you are buying a house and you give the money to the to the real estate agent or however it's done in this state, you kinda you trust that money is protected. Right? But it's not. So today, there's no formal requirement that you tell the potential homebuyer or the tenant that this money is in a safe account. [Speaker 3 ]: This bill way, it seems this would establish really protections from that. Yes. But so when the the person who has the security deposit there, they can't get back, the individual that that they gave it to is the one who sets up the account. Right. And and that person has has has has gone to Luxembourg Right. In order to avoid arrest. How does how does that person who is the ultimate payer who is owed the money even know that this account exists or knows it's a way a place where his money is hiding? [Rick Siegel]: It's a good question. So that and that might be something I'll defer to [Chair Ann Cummings]: Carl on [Rick Siegel]: it during the next that, but I I do think that we might need an education piece for that that the [Speaker 3 ]: If if if if if the person who has fled has put the money someplace, it may be traceable. But here, where you've done private deal with an attorney or or or whoever to put the money into this particular account that can only be released under certain circumstances to the beneficiary. How how does anybody who has a valid claim know that it exists and know that it's placed [Chair Ann Cummings]: to even hunt for it? I think I'm getting the message that we have questions Mhmm. And that this may not be ready for prime time. We have seven other states we can ask. You know, it doesn't have to be done now. We've been doing [Speaker 3 ]: and one other question I basically had is we know that service is done. Do you know whether it's been presented to any other state that's declined to take it up? [Rick Siegel]: Not sure if it's been declined, but it's currently, like, it is Vermont under consideration. That's the the [Chair Ann Cummings]: term We have another year in this biennium. And so I we can always find something to attach something to their tax in this. It's a bank tax. So [Carl Lisman]: Oh, you're not. [Chair Ann Cummings]: We're not getting a miscellaneous tax this year. Everything the tax department wanted is riding in the education bill. Because if that doesn't make it, we might get a bit. So please use that bill. And we'll have to do some shenanigans on maybe that's how we'll use the agriculture bill. We're gonna leave in. But How do we work? Worse things have been done. Another question. Yeah. I think what's that? What I'm hearing is I'm gonna let this sit. I hope vote to UCC out tomorrow, and then we can let this one ride and take some time and talk to see what other states have done, see if they encountered any difficulties that we can learn from, or we'll probably give Rick and Maria time to research. [Speaker 3 ]: Maybe answers to all the questions I've asked. Somebody else's algorithm is just I mean, they just don't know. You know? [Rick Siegel]: But that's a good question. [Chair Ann Cummings]: Yeah. And we probably just need time to to do a list of questions. We can let this bill sit per week. We can see if we can come up with a list of questions. Just everybody, if you have them, we'll take a few minutes at the end of the day tomorrow when we're all happy and fresh and [Speaker 4 ]: see if [Chair Ann Cummings]: we can come up with some questions that we might need. And Ricky can help us with questions for who would like. And can you communicate to Maria? Do we need to send her a good mail? Or maybe we'll see if Maria can join us. [Rick Siegel]: She's she's out of town. [Chair Ann Cummings]: She's out of town. [Rick Siegel]: She'll be back up next week. [Chair Ann Cummings]: Okay. So we won't have her. So we will put this off till next week because she does do most of our banking. [Rick Siegel]: And she's she's aware of the bill, but, you know Yep. [Chair Ann Cummings]: It is also do. I and we should hear from our counsel that does banking if we're talking about banking. And we'll give the bankers a chance to think on it. And if we think we might go forward with this, still doesn't have to come out tomorrow if you come out. I told the office I would either not bring it up until tomorrow or we wouldn't vote it until tomorrow so that they could close the calendar and go home before seven to eight o'clock. And we will take this again. That'll give everybody some time. In the meantime, Carl, if you just have, like, one sentence as two, three as to what's covered in each section of that bill, because we didn't go into a lot of detail, but I'm gonna have to tell them something on the floor. I will get that from you. Okay. Thank you. Thank you. That yes. We know we can't change it or alter it. We know we need to pass it, but I we should know what it is. Okay. I think that's it.

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SmartTranscript of Senate Finance - 2025-04-10 - 3:55PM

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