Most every lawyer or firm that handles client funds has an Interest on Lawyers Trust Account (IOLTA) account through their financial institution. IOLTA accounts are used to hold pooled client funds or third-person deposits to be held for a short time. Despite widespread familiarity with the ethical rules governing maintenance of these accounts, most attorneys are unaware of what happens to the interest accrued from their IOLTA accounts. IOLTA interest funds civil legal aid programs in Minnesota. Patronizing banks that pay a higher interest rate on IOLTA accounts results in higher payouts to legal aid programs.
Minnesota’s IOLTA program has been a powerful access to justice tool, operating as a key funding source for the civil legal aid organizations that provide Minnesota’s low-income residents with essential services related to safety, shelter, and sustenance. In 1983, Minnesota became the first state in the nation to create a mandatory IOLTA program by court rule, directing approved financial institutions to remit interest earned on IOLTA accounts to the Minnesota IOLTA Program, which funds legal aid programs statewide through grants made by the Minnesota Supreme Court’s Legal Services Advisory Committee.
Pegged to the fluctuating Federal Funds Target Rate, Minnesota’s IOLTA program has earned variable amounts of revenue since its inception. It generated $3,850,000 million in annual revenue at its peak in 2007. Due to the 2008 recession and the nearly flat interest rates thereafter, annual IOLTA revenue fell to less than $301,187 in 2014, a 92 percent decrease. (See chart.)
To address this plummeting IOLTA revenue, the Minnesota State Bar Association’s Legal Assistance to the Disadvantaged Committee created the Prime Partners Program for financial institutions in 2013. Participating institutions are approved to host IOLTA accounts and agree to pay a net interest rate on all IOLTA accounts of at least 0.5 percent. By way of comparison, the current interest rate on other IOLTA accounts is “(i) the highest earnings rate generally available from the institution to its non-IOLTA customers on each IOLTA account that meets the same minimum balance or other eligibility qualifications, or (ii) 80 percent of the Federal Funds Target Rate on all its IOLTA accounts.” The average rate currently being paid on IOLTA accounts across all banks is just 0.1 percent.
Since 2013, the Prime Partners program has yielded more than $40,000 in extra revenue for civil legal aid programs. According to Bridget Gernander, Legal Services Grant Program Manager: “Each IOLTA account that a firm moves to a Prime Partner bank is like a free donation to civil legal aid, because Prime Partner banks pay higher interest into the IOLTA program.”
Currently four financial institutions are enrolled in the Prime Partners program: Community Bank (Amboy, Mankato, Vernon Center), Riverland Bank (Jordan), Stonebridge Bank (Minneapolis, Shakopee), and Unity Bank North (Red Lake Falls, Mentor).
Cathy Haukedahl, executive director of Mid-Minnesota Legal Aid, explains: “Every increase in IOLTA revenue for Minnesota’s legal aid programs helps close the ‘justice gap’ by expanding the legal help available for Minnesotans with low incomes. We appreciate those banks and law firms who already support the Prime Partners Program, and look forward to seeing increased participation.”
Attorneys who’d like to transfer their IOLTA accounts to Prime Partner banks may do so by following the instructions in the sidebar. Banks interested in enrolling in the Prime Partners program can sign up at www.mnbar.org/primepartner or contact MSBA’s Access to Justice director Lindsay Davis at LDavis@mnbar.org.
How to Change Your IOLTA Account
To close a trust account, fax a letter to (651) 297-5636 Attn: IOLTA Program with your name, the firm name (if applicable), the account number and the date it was closed. Be careful to account for any outstanding checks and interest that has been credited to the account but not yet paid to the IOLTA program. The bank’s computer payment system may automatically transfer the credited interest amount after you have removed the funds, causing an overdraft.
Opening a trust account at a new bank should be straightforward. Make sure the account includes the Tax ID number of the IOLTA program, which is available on the Form to Establish an IOLTA account at www.mncourts.gov/iolta. After opening the trust account with a new bank, include the updated account information on your next attorney registration statement. The bank will communicate the new account information to the Minnesota IOLTA program with their next reporting cycle.
Courtesy of Lawyers Professional Responsibility Board