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ARIZONA STATE SENATE
Fifty-Sixth Legislature, Second Regular Session
reciprocal deposits; escrow agents; definitions
Purpose
Authorizes an escrow agent (agent) to use a system of reciprocal deposits to provide additional insurance with the Federal Deposit Insurance Corporation (FDIC) for monies held by the agent and designated for deposit in a qualifying financial institution.
Background
An agent is any person engaged in the business of accepting escrows. Most real estate transactions use escrow accounts to hold funds relating to the transaction. At the time of closing, agents disburse monies to various entities such as mortgage brokers, realtors and sellers. An agent may only disburse money out of an escrow account if deposits are previously made that are at least equal to the disbursements and the deposits relate directly to the transaction for which the money is being disbursed. Unless otherwise instructed in writing, an agent must deposit and maintain all escrow funds in a financial institution that does business in Arizona. Agents must keep all escrow monies separate from monies belonging to the agent and to clearly designate escrow monies as escrow accounts or another appropriate label upon deposit (A.R.S §§ 6-801 and 6-834).
The FDIC insures deposit accounts up to $250,000. Reciprocal deposit networks interchange deposited funds that exceed the FDIC limit between insured financial institutions within the network and allow depositors to receive insurance coverage for the entire amount of deposits. Following a deposit exceeding the insurance limit from a depositor, the financial institution uses the network to simultaneously place the uninsured portion with other insured financial institutions and receive equal amounts of insured deposits in return (FDIC).
There is no anticipated fiscal impact to the state General Fund associated with this legislation.
Provisions
1. Allows an agent to use a system of reciprocal deposits to provide additional insurance with the FDIC for monies held by the agent, if the eligible depository:
a) arranges for the deposit of the monies in one or more federally insured banks, savings banks or savings and loan associations for the agent's account; and
b) receives an amount of federally insured deposits from customers of other financial institutions equal to or greater than the amount of monies initially deposited by the agent.
2. Defines reciprocal deposit as a deposit that an eligible depository receives through a deposit placement network on a reciprocal basis such that:
a) for any deposit received, the insured depository institution places the same amount with other insured depository institutions through the deposit placement network; and
b) each member of the deposit placement network sets the interest rate to be paid on the entire amount the member places with other deposit placement network members.
3. Defines eligible depository as a bank, a savings bank or a savings and loan association that has a branch or principal place of business located in Arizona and that is insured by the FDIC or its successor.
4. Makes technical and conforming changes.
5. Becomes effective on the general effective date.
Prepared by Senate Research
February 1, 2024
MG/JC/cs