New FDIC Rule Affects Insurance on IOLTA Accounts

On November 21, 2008, the FDIC adopted a final rule in which the category of non-interest bearing transaction accounts includes IOLTA and functionally equivalent accounts, and provides for unlimited insurance for such accounts held in participating financial institutions through December 31, 2009. For more information, click here.

Recent Rule Change

In September 2008, the New Mexico Supreme Court approved amendments to the state’s IOLTA rule converting the IOLTA program from opt-out to mandatory status and adopting IOLTA interest rate comparability. The amendments become effective on January 1, 2009.

Under mandatory IOLTA, lawyers who handle client funds are required to participate in IOLTA. Under IOLTA interest rate comparability, lawyers are required to place their IOLTA accounts at a financial institution that pays those accounts the highest interest rate or dividend generally available at the institution to other, non-IOLTA customers when the IOLTA accounts meet the same minimum balance or other requirements.

Once the New Mexico rule revisions become effective, there will be 38 mandatory IOLTA jurisdictions and 23 jurisdictions with IOLTA interest rate comparability.

IOLTA programs provide funding critical to maintaining and improving access to the justice system in communities across the United States. Depending on the state, IOLTA dollars go to support civil legal assistance for poor people, efforts to improve the administration of justice by our courts, initiatives to educate the public about legal issues, and scholarships and clinical instruction for law students.

Here are some recent stories about the organizations and initiatives funded by IOLTA programs:

• IOLTA at Work in Montana: Consumer Advocacy at Montana Legal Services (Summer 2008)
• IOLTA at Work in New Jersey: Covenant House New Jersey Provides Critical Legal Services to Homeless Youth (Spring 2008)
• IOLTA at Work in Vermont: Vermont’s Have Justice-Will Travel Program (Winter 2008)
• IOLTA at Work in Wisconsin: Disability Rights Wisconsin Fights for Access and Freedom from Abuse, Neglect, Discrimination (Fall 2007)

Constitutional challenges in the federal courts have ended in the wake of the U.S. Supreme Court's decision in Brown v. Legal Foundation of Washington (PDF), 538 U.S. 216, (2003), which found that Washington State's IOLTA program did not violate the Fifth Amendment. The long-standing cases against the Texas and Washington State IOLTA programs were dismissed in late 2003 and early 2004.

In October 2004 the Supreme Court declined to hear a case involving a Fifth Amendment claim brought in Missouri state court against that state's IOLTA program. That decision left standing a March 2004 appellate court decision to dismiss the claim against the IOLTA program.

Read a detailed analysis of the Brown decision or learn more about the background of the litigation.