IOLTA

Supreme Court Issues Order to Establish Mandatory IOLTA

*NEW*NC IOLTA Considers Comparability
What is IOLTA?
Information for Lawyers
Information for Banks
Information about IOLTA Grants
Contact the IOLTA Office

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On October 11, 2007, the North Carolina Supreme Court ordered the North Carolina State Bar to implement a comprehensive (mandatory) IOLTA program for lawyers in North Carolina effective January 1, 2008.

Under revised rules governing the NC IOLTA program (approved by the NC Supreme Court in March, 2008), lawyers must certify annually when paying their NC State Bar dues that EITHER all general client trust accounts maintained by the lawyer/law firm are IOLTA accounts OR that they are exempt from the program because they do not maintain general client trust accounts. Lawyers must be in compliance with this requirement no later than June 30. Failure to comply may result in administrative suspension of your law license.

Compliance is determined by annual certification. You must certify your IOLTA status to the State Bar each year when paying your dues - even if all your eligible accounts have been properly established as IOLTA accounts or if you are exempt because you have no general trust accounts.

If you have paid your dues but did not certify to your IOLTA status, you may cure that deficiency by completing and returning an IOLTA certification document, which the State Bar is accepting during this transition year. Submission of this certification will remove your name from the “Failed to certify” listing before it is forwarded to the Administrative Committee of the Council of the North Carolina State Bar to be considered for action at its July meeting.
If you are submitting a late dues payment, you must also certify to your IOLTA status. If you are not paying on line or by returning a dues notice (which provide a method for certification), please submit the IOLTA certification document with the payment.
If you have not converted your general client trust accounts to IOLTA accounts, be sure to include your trust account information when paying your dues or submitting the IOLTA certification document.

Opening and closing accounts must also be reported to NC IOLTA, which provides a Status Update Form for that purpose. This form is also to be used to report changes in employment or address.

NC IOLTA Considers Comparability

Move to mandatory protects NC IOLTA for 2008. In 2008, NC IOLTA became one of 39 jurisdictions implementing a mandatory IOLTA program thereby increasing funding available to meet the bar’s obligation to ensure equal access to justice. NC IOLTA income increased by 16% in 2008 despite the unprecedented low interest rates being paid on lower principal balances in the accounts due to the economic downturn. Absent the move to mandatory, NC IOLTA estimates there would have been a 12% decrease in income for 2008.

Requiring comparability would increase IOLTA income. Over the last several years, many jurisdictions (25 at last count) have increased IOLTA income significantly by implementing a comparability requirement—asking participating banks to pay rates on IOLTA accounts that are comparable to what they pay on other similar accounts. NC State Bar President John McMillan has made exploring a comparability requirement for NC IOLTA a goal of his presidency, and the concept is supported by NCBA leaders.

Consultant’s report recommends NC IOLTA move to comparability. NC IOLTA trustees engaged a consultant whose analysis of our program determined that, under comparability, significant increases could be projected for the future and recommended that North Carolina should begin the process of changing to comparability now so it will be in place when the rate climate improves. This will significantly increase the funds available for the support of the bar’s responsibility of ensuring equal access to justice.

COMPARABILITY FACTS:

A comparability requirement is: a revision to IOLTA rules that requires lawyers to hold their IOLTA accounts only at banks that will agree to pay IOLTA accounts the highest rate available to that bank’s other customers when the IOLTA accounts meet the same minimum balance or other account qualifications.

The comparability requirement does not regulate banks. The rule regulates the behavior of attorneys. The decision to offer attorney trust accounts or participate in IOLTA has always been and would remain voluntary for the banks. Setting such a requirement by rules governing attorneys is similar to other NC State Bar requirements for banks that want to hold attorney trust accounts, such as requiring NSF notification and reporting or record retention requirements.

The comparability requirement does not set interest rates or require comparing rates between banks. Rates are set by each bank for its customers based on the factors a bank normally considers when setting rates. Comparability only requires participating banks to pay interest rates comparable to what it already pays its similarly situated non-IOLTA customers—and, IOLTA will pay any resulting fees attached to the higher rate products.

NC IOLTA would work with the banks to ensure implementation and monitor compliance. NC IOLTA will work with each bank to provide technical assistance. Some banks will not be affected at all as generally only high balance accounts are affected, and some banks do not offer higher rates to any customers. Also, approximately 75% of NC IOLTA accounts are held in seven banks that are in multiple states, some of which are comparability jurisdictions, so they will already be accustomed to the requirements.

There should little or no impact on attorneys. Comparability states have reported that establishing the regulation has not disrupted relationships between law firms and banks as no or very few banks have chosen not to participate. In the unlikely event that a bank decides to stop participating in IOLTA, NC IOLTA would work with the attorney or law firm to move to a new bank and cover the costs for replacing checks.

The comparability requirement is more efficient and yields higher income than negotiating rates. Over the years, the staff and trustees of NC IOLTA have worked to improve interest rates on IOLTA accounts in a seemingly never-ending cycle of bank negotiations with limited success. For example, the last time there was an interest rate downturn followed by an upswing, there was a very slow increase in negotiated rates on IOLTA accounts, and they never reached the higher levels paid on other high balance accounts. As the federal funds target rate rose from 1% to 5%, IOLTA rates remained well under 1% while banks were paying other customers with high balance accounts over 3%.

Comparability has been implemented in 25 states yielding some astounding income increases. For example, Florida, one of the first states to implement comparability, moved from $12 million in 2004 to $72 million in 2007; Texas went from $6.3 million to $20 million; and Massachusetts from $17 million to $32 million in the first year of implementation (2007).

IOLTA staff and leadership are working with State Bar leadership and staff to take the following next steps:

1) draft an IOLTA rule revision that would include comparability requirements (using resources available at the ABA that collect and review IOLTA rules and can comment on best practices) for review;
2) begin a dialogue with the NC Bankers Association; and
3) begin educating the bar about the concept.

What is IOLTA?

The North Carolina State Bar Plan for Interest on Lawyers' Trust Accounts (“IOLTA”) was established by the North Carolina State Bar and the North Carolina Supreme Court to generate income from lawyers' trust accounts in order to fund programs for the public's benefit.

Lawyer's IOLTA
Trust Account

Bank Pays
Interest-less
Routing Service
Charges

Funds to
NC IOLTA Program

Grants for Legal Services to the Indigent and Improvement of Administration of Justice

NC IOLTA provides vital funding in support of the public interest

NC IOLTA has been a vital source of funding for the provision of civil legal service to the poor through grants made to staffed legal services programs and volunteer lawyer programs that serve every county in the state and for other programs that work to improve the administration of justice. Since its first grants were made in 1984, NC IOLTA has provided over $50 million to provide legal assistance for at-risk children, the elderly, the disabled, and the poor in need of basic necessities, and to help lawyers connect with those who need their pro bono assistance. Other innovative programs have assisted the Administrative Office of the Courts with its need for interpreter services; put law students into public interest summer internships to help them understand the need for public interest and pro bono service; trained local officials on how to provide safe and humane jails; provided first rate judicial education to NC judges; and leveraged state funds provided to assist young lawyers in public interest practice pay off law school loans.

Moving to a mandatory IOLTA program increases vital support

Equal access to justice is fundamental to our system of democratic government and necessary to the maintenance of public trust and confidence in the courts. Its denial has an adverse impact not only upon individuals and families, but also on society as a whole.

Lawyers have a professional responsibility to do what they reasonably can to increase the availability of legal services for all, regardless of the ability to pay (See Preamble to NC Rules of Professional Responsibility). In recognition of this professional obligation, the North Carolina State Bar adopted in 1983, with the approval of the NC Supreme Court, the Plan for Interest on Lawyers' Trust Accounts (NC IOLTA) by means of which funds generated from interest earned on pooled client trust accounts could be used to provide funding for civil legal aid and other projects that improve the administration of justice.

Despite these and other efforts, statistical information tends to demonstrate that less than 20% of the legal needs of poor people in North Carolina are presently being met. The council of the North Carolina State Bar believes that the conversion of North Carolina's voluntary IOLTA program to a comprehensive IOLTA program would greatly enhance the ability of the legal profession to financially support access to justice in North Carolina, a view shared and endorsed by the North Carolina Bar Association and the North Carolina Equal Access to Justice Commission.

Moving North Carolina to a mandatory IOLTA program will provide much-needed additional support for our access to justice community and other innovative programs in the public interest without requiring attorneys to provide their time or monetary support.

For more information about IOLTA, please contact our office.

Evelyn Pursley, Executive Director
Claire Mills, Accounts Manager
Sonja Puryear, Administrative Assistant

IOLTA
208 Fayetteville Street
Post Office Box 2687
Raleigh , North Carolina 27602

(919) 828-0477
(888) 828-1718 fax