Hello, at the FBA Admin Seminar in Miami we mentioned IOTA accounts that became overdrawn. I think the question raised was, if the account was overdrawn is the bank required to report the overdraft to the Florida Bar.

Well I did some research because we may have had IOTA accounts that were OD and on whom we returned cks NSF. The answer is yes and no.<g>

The following rule is located at

http://www.floridabar.org/divexe/rrtfb.nsf/FV/E1831C523E86C08F85256BC000696D44


And is from the Rules Regulating the Florida Bar-Chapter 5 Rules Regulating Trust accounts

(4) The lawyer or law firm shall authorize and request any bank or savings and loan association where the lawyer is a signatory on a trust account to notify Staff Counsel, The Florida Bar, 651 East Jefferson Street, Tallahassee, Florida 32399-2300, in the event any trust check is returned due to insufficient funds or uncollected funds, absent bank error

Well the threshold question regarding the above is does the bank have the authorization from the law firm to report the return item(s). The answer is we do if the law firm signed a form authorizing us to comply with the above rule. We have a form created by the Florida Bar for new IOTAs however the form provided by the Florida Bar does not authorize a bank to report the return of checks. We confirmed this by having our bank attorney review the form and provide an opinion as to whether it granted the authority we were looking for. Obviously the bank wanted to know if the form protected the bank from any confidentiality rules between the bank and its customer, the form did not.

Our attorney advised us to create a new form basically stating that by signing the form they were authorizing the bank to comply with the rule mentioned above. Once the form is created we will have every current IOTA owner(s) sign the form and incorporate the new form into any future IOTA account agreement.

Anyway if anyone is a few steps ahead of us and already has a form that authorizes the bank to report the NSF or uncollected returns I would love to see it. The Florida Bar did tell me that a large national bank always informs them immediately whenever any check is returned nsf or unc on any IOTA however they did not mention the bank nor confirm if that bank had authority from the law firm to make the report.

Any feedback regarding above is always appreciated.

Regards,
Carolyn

Quote:

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The lawyer or law firm shall authorize and request...

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I believe the point was made during the program that the lawyer is the regulated party here, not your bank. You are not required to obtain the instruction; the lawyer is required to give it to you. You are theoretically required to follow it because you opened the IOTA account. However, if the lawyer does not give you the instruction, you do not have a problem; your compliance responsibilities only begin when you receive the instruction.

Having a form ready for a requesting attorney to sign is a good thing. However, please reconsider whether it is in your bank's best interest to take the initiative in extracting these instructions from your local law firms. At best, these accounts are loss leaders and increasing your responsibilities will simply bury you more deeply.

You are going to get some pushback. Some attorneys are going to refuse. This is Pandora's Box.

The State of Alabama has a supplemental account agreement that a lawyer is supposed to ask the bank to execute for this purpose. So far, we have had very few lawyers ask us for the form.

It seems very strange to me that a state would pass a law requiring lawyers to initiate a process for reporting of NSFs and fail to insure the process is followed. I guess when enough trust money disappears someone will pay more attention.

It's not actually a law, but a rule of the Florida Supreme Court. It only binds the attorneys who are members of the Florida Bar Association. It could only be "enforced" by disciplining the attorney involved.