Client trust accounts are not typical, Garlow explained,
because their average balance of about $30,000 per account is significantly higher than
the balance of the average interest-bearing checking accounts. "Banks should
recognize large balance accounts by paying higher interest rates," she said.
Further, the banks should take into consideration the charitable purposes served by the
interest on the accounts.
The Interest on Lawyers' Trust Accounts (IOLTA) program was created by the California
legislature at the bar's request in 1981. Modeled on similar programs in Canada and
Australia, it was seen as a creative method of financing civil legal services to the poor
at no cost to the public.
The law requires attorneys who handle small or short-term funds belonging to their
clients to place money in a single, interest-bearing trust account. Banks forward the
interest earned on these accounts, minus service charges, to the bar's trust fund program.
Currently, between $900 million and $1 billion in principal is deposited in almost
36,000 interest-bearing checking accounts in more than 300 California banks.
At its height, in 1990-91, the trust fund program awarded grants of $22.3 million to
programs in California. When interest rates plummeted from about 4 percent to an average
of just over 1 percent between 1991 and 1993, the grants declined to a low of $5.8 million
In the years since, the grants have increased, due to the increased number of accounts
and the trust fund program's success negotiating favorable interest rates with the banks.
When the Federal Reserve lowered interest rates in December, some banks followed suit
on interest-bearing checking accounts. There is little pressure to keep those rates up,
Garlow said, because usually interest-bearing accounts contain modest balances.
Wells Fargo has not lowered the interest rate on client trust accounts. However, the
Bank of America has, offering 1.25 percent on accounts with balances over $100,000,
compared to 2 percent by Wells.
Other banks which have lowered their rates include City National - to six-tenths of 1
percent - and Sanwa Bank - to 3/4 of 1 percent.
In response, the trust fund commission launched a campaign to pressure banks to raise
the rates. In addition to negotiating with individual banks, the commission is asking law
firms to contact their banks to seek higher interest rates.
"We believe there are sound reasons to make an exception for these accounts,"
Garlow said. "Unless we can reverse the trend, we will have to make substantial cuts
in our grants in July of 2000."
This year, IOLTA funds support free legal services offered by 110 California agencies.
The grants are seen as a crucial source of funding, amounting to about 15 percent of all
the funds available for civil legal services to the poor in California.