May 01, 2018

IOLTA Account Insurance Coverage

NCUA Insurance Coverage for IOLTA Accounts in Credit Unions

On December 11, 2014, the U.S. Senate passed a bill (known as the Credit Union Share Insurance Fund Parity Act) that provides the same level of insurance coverage for IOLTA accounts held at credit unions that the FDIC provides for IOLTA accounts held at banks. The bill previously had been passed by the House of Representatives on May 6, 2014.  It was signed into law by the President on December 18, 2014.

While all IOLTA accounts held at banks have FDIC insurance providing $250,000 of protection per client per institution, prior to the enactment of this law, the National Credit Union Administration (NCUA) provided coverage for IOLTA accounts in credit unions only if the client was a member of the credit union or if the credit union was designated as low-income.  The new law will ensure that funds held in IOLTA accounts have the same level of protection regardless of whether the IOLTA account is in a credit union or a bank. 

The text of the legislation containing the IOLTA provisions is available here.

FDIC Insurance Coverage Changes for IOLTA and Non-Interest-Bearing Accounts

As of January 1, 2013, FDIC insurance available to IOLTA accounts is $250,000 per owner of the funds (client), per financial institution, assuming that the account is properly designated as a trust account and proper accounting of each client’s funds is maintained. Non-interest-bearing trust accounts have this same level of coverage.

For the past two years, IOLTA and non-interest-bearing accounts enjoyed unlimited FDIC insurance coverage pursuant to Section 343 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. That provision was to be effective for two years with a sunset date of Dec. 31, 2012.

Although there were attempts in Congress to extend that coverage for an additional two years, and the American Bar Association and others have lobbied for that extension, those efforts were not successful due largely to legislative maneuvering that was unrelated to the merits of the issue.  As a result, IOLTA and non-interest-bearing accounts now have the same level of FDIC insurance coverage as all other FDIC-insured accounts.

Further information on FDIC insurance coverage for IOLTA and other accounts is at: https://www.fdic.gov/deposit/deposits/.