|Each California attorney can increase access to the civil justice system
for indigent persons by writing a single letter. Here's how.
In 1981, the California
legislature created the Legal Services Trust Fund Program 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 ("IOLTA" accounts).
Funds placed into IOLTA accounts would not generate net income to clients, after deduction
of bank charges, without the IOLTA program.
From a high revenue
mark of $22 million in 1990-91, IOLTA revenue fell to $12 million in 1997-98 because of
declining interest rates. The bar's board of governors, through its Legal Services Trust
Fund Commission ("IOLTA Commission"), is working to increase IOLTA revenues.
IOLTA is important to the California justice system in general and indigent persons in
particular, and we plan to recognize those banks that most advance the program. In 1999,
the IOLTA Commission will recognize the bank that pays the highest "yield"
(interest earnings less service charges) and the "most improved" bank. We will
also publish a list of comparative yields in the hope that attorneys will move their IOLTA
account to the banks generating the highest yields.
We believe 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) they generally have higher
average daily balances, and (3) they are business accounts opened by law firms, who
frequently generate additional bank revenue.
The IOLTA 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 I encourage attorneys to contact their bank about its
IOLTA yield. The average interest rate in California is 1.25 percent and the average
monthly service charge is $5. We are asking each bank to pay 2 percent interest and charge
no more than a $5 service fee. If your bank's IOLTA yield is lower than our goal, I
encourage you to write a letter to your account representative (copying the bank
president) requesting a rate increase. For more information or a sample letter, please
contact the State Bar's Linda Kelly (415/561-8254).
Last year the U.S. Supreme Court decided Phillips v. Washington Legal Foundation, in
which the plaintiffs claimed that the Texas IOLTA program violated the First Amendment and
the Fifth Amendment "Takings Clause" of the U.S. Constitution. The Supreme Court
held (5-4) that interest earned on client funds in IOLTA accounts is a property right
recognized by the Fifth Amendment.
However, the Supreme Court's decision does not require dissolution of IOLTA programs.
In fact, after the Phillips decision, the U.S. Confer-ence of State Chief Justices
reiterated its support for continued operation of IOLTA programs. The Phillips court
remanded the case to the District Court for resolution of the second and third prongs of
the "takings" claim. The Texas bar is arguing that because no net income would
have been generated by moneys in the IOLTA accounts in the absence of the IOLTA program,
(1) there is no "taking" because a client suffers no economic loss and (2) the
client has not been denied "just compensation" because just compensation is
measured by the property owner's economic loss, not the government's gain.
The California IOLTA program continues to function as it did prior to Phillips. Because
of low interest rates, 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
Chris Lynch is a fourth-year member and
current chair of the Legal Services Trust Fund Commission. He is a partner at Jones Hall
in San Francisco specializing in public finance.