California lawyer can increase access to the civil justice system for indigent persons by
writing a single letter.
Bars Interest on Lawyer Trust Accounts (IOLTA) program, which funds legal services
for the poor, continues to work to improve the yield of banks IOLTA accounts.
Although the Federal Reserve has raised the interest rates banks receive on their funds
over the past year, the interest rates on IOLTA accounts generally remain low. In fact,
some banks offer gross interest rates as low as one-half of 1 percent, and net yields
below 1 percent.
the net yields offered by banks on California IOLTA accounts are generally lower than
those offered by banks on IOLTA accounts in other states.
Last month, the
California Bar Journal published a chart (May, page 22) listing the net yields, interest
rates and service charges on IOLTA accounts held in 25 California banks.
If, based on
the information in the chart, you believe your bank should be offering a higher yield on
its IOLTA accounts, we encourage you to write a letter to your account representative
(copying the bank president), and request a rate increase. Last months chart gives
you and your bank the data necessary to make a meaningful comparison of the IOLTA account
yields offered by California banks. If your account is not at one of the listed banks,
feel free to contact Linda Kelly at the State Bar (415/538-2254) to learn more information
about yields, interest rates and service charges offered by your bank.
Bars Legal Services Trust Fund Commission, which administers net interest income
flowing from IOLTA accounts, was created by the California legislature in 1981 as a
mechanism to fund free legal services in civil matters for indigent persons. Lawyers are
required to deposit nominal or short-term client funds into interest-bearing demand trust
accounts. Currently, IOLTA accounts have a total balance of nearly $1 billion in
From a high
revenue mark of $22 million in 1990-91, IOLTA revenue fell to a low of $7 million in 1994
because of declining interest rates. Last year, the program awarded $11.3 million in IOLTA
grants to 105 programs in the state.
This year, the
grant totals are expected to be $11 million. The expected $300,000 decline reflects a
decrease in interest rates paid by California banks.
The Trust Fund
Commission believes IOLTA accounts should generate higher yields than typical consumer
checking accounts because (1) the interest earnings provide an important public benefit
(consistent with banks Community Reinvestment Act obligations), (2) IOLTA accounts
generally have higher average daily balances, and (3) IOLTA accounts are business accounts
opened by law firms, which frequently generate additional bank revenue.
already have agreed to pay a higher rate of interest on IOLTA accounts than on other
interest-bearing accounts, in recognition of the large average balances in the accounts
and the special public purpose for which the funds are used.
The Trust Fund
Commission has been moderately successful in convincing banks to increase IOLTA yields.
Our most successful negotiating tool has been the expression of concern by the banks
attorney customers, and we encourage attorneys to contact their bank about its IOLTA
yield. We encourage attorneys to take an active role in increasing IOLTA revenue. A single
letter could increase access to the civil justice system for indigent Califor-nians.
Chris Lynch is a fifth-year member
and current chair of the Legal Services Trust Fund Commission. He is general counsel of
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