Rule 2 - Overdraft Notification Agreement Required
A financial institution shall be approved as a depository for lawyer trust accounts if it shall file with the highest court of the jurisdiction or the state lawyer disciplinary agency an agreement, in a form provided by the court or disciplinary agency, to report to the disciplinary agency in the event any properly payable instrument is presented against a lawyer trust account containing insufficient funds, irrespective of whether or not the instrument is honored. The court or disciplinary agency shall establish rules governing approval and termination of approved status for financial institutions, and shall annually publish a list of approved financial institutions. No trust account shall be maintained in any financial institution which does not agree to make such reports. Any such agreement shall apply to all branches of the financial institution and shall not be canceled except upon  days notice in writing to the court or disciplinary agency.
For purposes of this rule, each financial institution wishing to be approved as a depository of client trust funds must file an overdraft notification agreement with the highest court of the jurisdiction. In some jurisdictions, the court may wish to delegate to the state bar or some other agency the duty to enter into overdraft notification agreements with financial institutions and to publish a list of approved institutions.
The overdraft notification agreement requires that all overdrafts be reported to the state lawyer disciplinary agency, irrespective of whether or not the instrument is honored. In light of the purposes of this rule, and the ethical proscriptions concerning the preservation of client funds and commingling of client and lawyer funds, it would be improper for a lawyer to accept "overdraft privileges" or any other arrangement for a personal loan on a lawyer trust account.
Denial of discretion to financial institutions serves two important purposes. First, it makes notification by a financial institution an administratively simple matter. An institution which receives an instrument for payment against insufficient funds need not evaluate whether circumstances require that notification be given; it merely provides notice. It then becomes the responsibility of the lawyer disciplinary agency to determine whether further action is warranted.
Second, mandatory notification shields the financial institution from potential tort claims by the lawyer's clients for failure to report overdrafts. Liability for negligence in reporting overdrafts could be alleged by a person, injured by such failure to report, who falls within the zone of forseeability and for whose benefit the duty to report was instituted. Arguably, a financial institution could owe a duty to the lawyer's clients who supplied the funds, and to the lawyers' fund for client protection if a pay-out is made in the event of theft of those funds. If an institution reports all overdrafts, its potential liability for negligent failure to report is minimized. In cases where a bounced check or overdraft is a result of an accounting error (caused by either the lawyer or the financial institution), but notification has already been sent to the state agency, the institution should provide the lawyer with a written explanation (preferably, an affidavit from an officer of the institution) which the lawyer can then submit to the agency to verify the error. In the event of financial institution error no record need be kept by the agency.
The rule calls for the highest court of the jurisdiction (or lawyer disciplinary agency, where the court has so delegated) to establish rules governing approval of financial institutions' holding of client trust funds, and termination of such approved status. These rules should specify under what circumstances approved status will be withdrawn. For instance, the court's rules might state that approved status may be revoked where the institution demonstrates "a pattern of neglect or a showing of bad faith" rather than an occasional or negligent failure to report an overdraft. See Overdraft Implementation Guidelines, 115 N.J.L.J. (Feb. 14, 1985), at 1.
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