IOLTA

Is anyone planning on changing or doing away with the traditional IOLTA accounts now that paying any form of interest on them will disqualify them for FDIC insurance? (other than the standard $250,000) We have several that carry large balances that will now no longer be insured....just wondering what others are doing?

I doubt that your State law will allow you to quit paying interest on IOLTAs. The whole idea behind those accounts is to fund legal services for people that cannot afford it.

I thought decision was reversed and IOLTA's are now included!! also, does anyone have sample notice of informing customers, lobby signs etc?

Yes, we are pondering not offering the IOLTA....you can get the language for your signs from the FDIC's web site.

retract my response, I am mistaken!

If participation in your state's IOLTA program is optional, you can decide not to offer them, but if you want those dollars on deposit, you have to play by the state's IOLTA rules, and that includes paying interest.

Candidly, I think the whole question of full FDIC coverage for IOLTA accounts is a tempest in a teapot. Unless the attorney doesn't have adequate records of his/her clients' beneficial interest in the balance, or the account isn't set up properly to indicate it's an IOLTA, the beneficial owners should have pass-through coverage for their interests in the account balance, and unless things have changed a lot, most beneficial interests won't exceed the $250,000 SMDIA.

The existence of the IOLTA or IOTA is not attributable to state law, but to the rules of the state bar association or state supreme court, whatever organization it is that governs the practice of law in a particular state.

Banks are not the regulated party, lawyers are. If your bank does not want to offer them you do not have to; i.e. you do not answer to the bar association.

Generally, lawyers are required to open interest bearing accounts where client funds that are in small amounts or will be held for short periods of time are commingled. Florida's rule is representative. These accounts are loss leaders to be sure. Banks accept them only because they want the rest of the firms's accounts. If you refuse the firm's IOLTA account, you will likely lose their other accounts. (Banks that hold only the firm's IOLTA are candidates for the remedial Banking 101 course.)

Whether they are or are not covered by deposit insurance is the lawyer's issue, not the bank's. (Yes, I too can conjure up the image of a lawyer who would say it was the bank's fault.) Regardless, the attorney is required to maintain accurate records of client ownership so I agree with John's analysis.

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