ABA President William C. Hubbard urged action Sept. 10 on S. 2698, legislation that includes a provision that would allow credit unions to insure Interest on Lawyer Trust Accounts (IOLTAs) for up to $250,000, the same level of coverage provided by banks.
In a letter to the Senate Committee on Banking, Housing and Urban Affairs, Hubbard explained that S. 2698 and S. 2699, a bill containing only the IOLTA credit union provision, would ensure that client funds are protected regardless of whether an IOLTA is in a credit union or in a bank. The House passed H.R. 3468, its version of S. 2699, in May.
All 50 states have IOLTA programs, and 45 states require lawyers to place client funds in IOLTAs if the funds cannot earn interest for the client in excess of the costs incurred to secure that interest. Banks in turn forward the interest on these accounts to the state IOLTA programs, which use the money to fund a variety of charitable causes.
Hubbard pointed out that close to 90 percent of grants awarded by IOLTA programs go to legal aid offices and pro bono programs providing legal aid to people at or near the poverty line, including veterans, the working poor and persons with disabilities.
While banks have Federal Deposit Insurance Corporation (FDIC) coverage providing $250,000 of protection per client per institution, the National Credit Union Administration (NCUA) provides coverage for funds held in IOLTAS only if a client is a member of the credit union or the credit union is designated as low-income.
“Granting credit unions the ability to protect funds held in IOLTAs could also have a positive impact on states’ IOLTA programs, as credit unions may offer higher interest rates than banks,” Hubbard said.
During a Sept. 16 hearing on small depository institutions before the Senate committee, Sen. Mark Warner (D-Va.), a member of the committee and a cosponsor of S. 2698 and S. 2699, emphasized the importance of the IOLTA credit union legislation.
In addition to the ABA, the legislation has the support of the NCUA, the National Association of Federal Credit Unions, and the Credit Union National Association.