ABA Urges Unlimited FDIC Insurance for IOLTA

An ABA News Bulletin announced today that the ABA is entreating the FDIC to confer federal protection on IOLTA funds, the second largest funding source for the provision of free civil legal services to the poor:

One part of the financial package announced by the Federal Deposit Insurance Corporation to bolster confidence in the banking industry increased FDIC coverage on interest-bearing deposit accounts to $250,000.  The increased insurance may not be sufficient for funds in lawyer trust accounts for individual clients whose deposits in a single bank might exceed that level. American Bar Association leadership and the ABA's Governmental Affairs Office staff have met with FDIC officials and congressional staff and members to convince them that a change in the new regulation will benefit both those served by non profit legal aid programs and the banking industry itself. GAO and other ABA entities have been working with state bars, state IOLTA programs, Access to Justice commissions and others to help deliver that message. They are urging the FDIC either to treat IOLTA accounts like payment processing accounts, which they resemble, or expressly include IOLTAs among bank accounts that will qualify for unlimited FDIC insurance.

The FDIC has already announced that unlimited insurance will be available to non-interest bearing accounts. The ABA is requesting the FDIC recognize that because neither lawyers nor their clients receive interest from funds in IOLTA accounts, it is appropriate to extend the unlimited insurance to them. IOLTA accounts contain only those short-term or nominal client funds that cannot earn net interest for individual clients. Deposited with other similarly nominal or short term client funds in an IOLTA account, those pooled sums do earn net interest which is only paid to nonprofit entities for charitable purposes, primarily civil legal aid for the poor. The ABA is also emphasizing the important public policy of supporting legal aid for the poor—a policy that could be undermined should lawyers be driven to remove client funds from IOLTA accounts by an indifferent FDIC policy. On Nov. 13, the ABA sent a comment letter to the FDIC encouraging inclusion of IOLTA in full insurance coverage.

The ABA notes "In 2007, IOLTA grants nationwide totaled $240 million. Close to 90 percent of grants awarded by IOLTA programs ($212.2 million in 2007) support legal aid offices and pro bono programs." More information is available on the ABA Commission on Interest on Lawyers' Trust Accounts webpage.

-jl