Posted Dec 22, 2010 11:48 pm CST
The United States Senate this afternoon approved a two-year extension of Federal Deposit Insurance Corp. (FDIC) insurance for trust accounts set up by lawyers – a program that was set to expire on Dec. 31. The American Bar Association had lobbied hard for the extension.
The measure covering Interest on Lawyers’ Trust Accounts (IOLTA) passed by unanimous consent, and now moves to the White House for President Obama’s signature. All 50 states have IOLTA programs. In 42 states and the District of Columbia, lawyers are required to deposit client funds into the accounts, which earn no interest for the clients. Interest earned goes to fund civil justice programs for the poor.
“The issue was serious and the hour was growing late: if Congress had not extended unlimited FDIC insurance on these accounts for two more years, lawyers and their clients faced complicated ethical and financial questions about handling money involved in legal transactions,” according to an ABA written statement. “The ultimate casualty of this confusion would have been poor people whose access to the justice system comes through assistance from IOLTA-funded programs.”
Because it is unethical for lawyers to earn interest from client trust funds, they can’t profit from these secure accounts, explains a Web page for the ABA Commission on Interest on Lawyers’ Trust Accounts.
ABA Journal (2009): “Mobilizing to Preserve Legal Aid to the Poor”
Blog of Legal Times (Dec. 21, 2010): “IOLTA Accounts May Lose FDIC Protection”