In an effort to boost funding for Californias
legal services programs, the State Bars Interest on Lawyer Trust Accounts program
has launched a campaign seeking to improve the yield of banks IOLTA accounts.
While the Federal Reserve has raised the interest rates banks receive
on their funds, the interest rates on attorney-client trust accounts (IOLTA accounts)
generally are staying at the same low level, said Judy Garlow, director of the bars
Legal Services Trust Fund Program.
In fact, Californias interest rates on IOLTA accounts are among
the lowest in the nation; some banks offer as little as one-half percent, she said. The
net yield on many of the accounts, after deducting the service charges, is below 1
In a letter sent to banks in March, Trust Fund Commission chair Chris
Lynch asked that they either raise the interest rates on IOLTA accounts or reduce or waive
monthly service charges.
In support of his request, Lynch wrote, Several banks have
decided to pay a higher rate of interest on IOLTA accounts than on other interest-bearing
checking accounts, in recognition of the large average balances in the accounts and the
special public purpose for which the funds are used.
Since the majority of banks were not receptive to Lynchs
overtures, the Trust Fund Commission now is encouraging attorneys to contact their banks
directly to seek improvements in the yield on their trust accounts.
The interest earnings on IOLTA accounts, which have a total balance
of nearly $1 billion in California, are distributed to legal services programs which offer
legal assistance to the needy.
The grants reached a high of $22 million in 1990, but declined to a
low of $7 million in 1994. Last year, the program awarded $11.3 million in IOLTA grants to
105 programs in the state. This year, the grant totals will be $11 million. The $300,000
decline represents a decline in interest rates, Garlow said.
She noted that the bars trust fund commission was designated in
the 1999 state budget to adminster a new $10 million Equal Access Fund, which provides
additional funding for legal aid offices. Even with this important new funding,
however, we still fall far short of the money needed to provide the legal services
low-income people need, Garlow said.
Lawyers who do not hold any client funds are not required to have a
trust account, nor are attorneys required to maintain more than one trust account. Garlow
said she hopes attorneys will close any trust account they do not use because service
charges are deducted from the interest.
The chart above lists 25 banks in California holding the largest
balances in IOLTA accounts, as well as the interest rate, average service charge, and net
yield on the accounts.
Garlow lauded Wells Fargo for consistently paying a better rate on
IOLTA accounts than it pays on other checking accounts. And she singled out
Sacramento-based River City Bank for its 3.53 percent interest rate on IOLTA accounts, the
highest in the state. River City has offered the highest rate in California since 1995.
By publishing this list, we are trying to give lawyers
information they need to either seek an increase in the yield on their accounts or to
select a bank with an eye to maximizing that yield, Garlow said. Some banks
have already decided to pay a higher interest rate on IOLTA accounts.