The Fdic Extends Iolta Unlimited Coverage

The Federal Deposit Insurance Corporation (FDIC) recently announced that Interest on Lawyer Trust Accounts (IOLTA) is included in the Temporary Liquidity Guarantee Program (TLGP). Effective immediately, an individual client’s funds deposited in IOLTA are now fully insured through December 31, 2009. The decision protects client funds no matter the amount.

IOTA programs have been established by the supreme courts or legislatures of all 50 states. Ohio, among 36 other states, requires attorneys to deposit client funds that cannot earn net interest for the client in IOLTA accounts.

Attorneys routinely receive client funds to be held in trust for future use. If the amount is large or the funds are to be held for a long period of time, the attorney customarily places these funds in an interest-bearing account for the benefit of the client. However, in the case of amounts that are small or are to be held for a short time, it is impractical for the attorney to establish a separate account for each client since the cost of establishing and administering the account would exceed any interest generated, and result in a net loss for the client.

These funds are placed in pooled, interest-bearing accounts, IOLTA. The interest earned on these accounts is remitted to the state IOLTA program for charitable purposes.

Had the FDIC failed to expand full coverage for IOLTA, attorneys would have had to consider abandoning IOLTA for fully funded non-interest bearing accounts or moving IOLTA funds from community banks to the larger “too big to fail” banks. Moving the accounts to larger banks would have defeated the FDIC’s purpose in creating the TLGP.

The TLGP guarantees newly issued senior unsecured debt of banks, thrifts and certain holding companies, and provides full coverage of noninterest-bearing deposit transaction accounts. The FDIC adopted the program on October 13, 2008, due to disruptions in the credit market.

In a letter to the FDIC, the chairpersons of the boards of directors of 50 IOLTA programs throughout the country said establishing multiple accounts at various financial institutions for amounts greater than $250,000 was not a viable solution. The FDIC agreed.

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