Bank of America boosts its interest rate on IOLTA accounts

Jones

Bank of America, California’s largest bank and the holder of 20 percent of the state’s lawyer trust accounts, reached agreement with the State Bar last month to comply immediately with a new state law that boosts interest on IOLTA accounts.

The law, AB 1723, authored by Assemblyman Dave Jones, D-Sacramento, and signed by Gov. Schwarzenegger Oct. 10, took effect Jan. 1. It is expected to double the annual level of statewide funding — from the current $14 million to an estimated $30 million — for legal services programs for low-income and needy Californians.

BofA is the first bank in the state to comply with the new law. Its agreement with the bar will generate an estimated $2.25 million in additional funds this year for legal aid programs in California. The bar will enact new regulations this month to implement the law and a new companion Rule of Court has been submitted to the California Supreme Court.

“Bank of America has stepped up in a big way to meet the letter and more importantly the spirit of AB 1723,” said State Bar President Jeff Bleich. “By acting early, the bank is producing substantial additional funding that will be used to assist some of the neediest people in California. We are optimistic that other banks will follow its lead.”

“Bank of America has demonstrated once again why it is a leader in the California banking community,” added Jones. “I was pleased to have their good counsel as the bill was being considered in the Legislature and I applaud them for their commitment to IOLTA reform and for showing how quickly and easily it can be accomplished.”

All California banks must comply with AB 1723, which requires them to pay the same interest on IOLTA (Interest on Lawyer Trust Accounts) that they pay on similarly situated non-IOLTA accounts. BofA has agreed to exceed this requirement and to do so well in advance of a March 1 deadline set by the Legal Services Trust Fund Commission.

IOLTA accounts hold client funds that are too small or are held for too short a period of time to earn interest that exceeds the cost of maintaining the funds.

In California, interest on lawyer trust accounts is distributed among about 100 eligible legal services programs. But the grants fluctuate with interest rates and have shrunk nationwide as the rates have dropped. Grants declined in the state from a peak of $22 million in 1990 to about $14 million this year.

Currently most banks in California pay 1 percent interest or less on IOLTA accounts. BofA agreed to boost its rate on those accounts when it signed a contract with the State Bar in December.

“We commend Bank of America for its willingness to take the lead in closing the enormous gap between what’s needed to provide legal services to those who can’t afford them and the resources available to the 100-plus legal aid organizations that receive support from the IOLTA program,” said San Francisco attorney Dick Odgers, a member of the Legal Services Trust Fund Commission. “BofA has set an excellent example for California’s banking industry.”

The law and new regulations are not likely to impact attorneys, who do not need to take any action at this time. If any bank has not complied with the law within the phase-in period, attorneys holding IOLTA accounts at that bank will be notified.

Approximately 280 banks in California hold 83,000 IOLTA accounts. Sixteen other states have incorporated comparability into their IOLTA rules.

The legal services programs that will benefit from the increased funding face huge challenges in California, where only one legal aid attorney is available for every 8,300 eligible clients. According to a report by the Access to Justice Commission, the gap in funding needed to provide legal help needed by vulnerable Californians amounts to $394 million.