The Board of Trustees of the Interest on Lawyer Account Fund (IOLA) has adopted new standards for IOLA accounts. It has in fact repealed the entirety of Part 7000 of 21 NYCRR governing the IOLA Fund, and replaced it with an entirely new part 7000.
The purpose of the IOLA Fund is to provide funding to not-for-profit entities that provide civil legal services to the poor. Created in 1983, the IOLA program requires an attorney to open an IOLA bank account to deposit nominal or short term funds held by the attorney on behalf of a client or third party. Funds that would thus otherwise generate no net interest can be pooled to generate interest income. The banks where the IOLA accounts are created are then required to send the interest earned to the IOLA fund, and this money is used to award grants to civil legal service providers. Historically, the interest rates paid on IOLA accounts have been equivalent to the type of interest on accounts bearing the lowest interest rates, i.e. “NOW” accounts. In the new standards, the IOLA Board is seeking to increase the interest rates payable on IOLA accounts.
Thus, the most significant revision in the new part 7000 will be to require attorneys to maintain their IOLA accounts only in banks that meet a “best customer” standard for the interest paid on such accounts. In other words, the interest rate paid on the IOLA account must be at least as great as the rate the bank offers its best customers on similarly-sized accounts at the bank. Thus, if an attorney or law firm maintain their IOLA account at a bank that will no longer be eligible to maintain IOLA accounts because they do not pay the best customer interest rate required by the rule, the attorney or law firm will need to change the location of their IOLA account to an eligible institution. The particular rule involved is 21 NYCRR 7000.9. All attorneys are encouraged to read the details of this new rule.
The IOLA Board estimates that with the increased interest rates on IOLA accounts and additional $45 to $55 million annually will be generated for the IOLA Fund.