Louisiana Supreme Court Orders IOLTA Comparability Rule
The Louisiana Supreme Court amended the Rules of Professional Conduct Rule 1.15 Safekeeping and Interest on Lawyers Trust Accounts (IOLTA) Rules on January 3, 2008 so that IOLTA accounts must now earn the same (or comparable) interest or dividend rates generally available to similarly situated non-IOLTA customers at the same institution.
The 1990 IOLTA rule provided for interest rate parity for similar accounts, which pegged IOLTA to low-rate interest checking accounts, even when balances exceeded minimum requirements for higher rate products. The rule change requires higher rate options for qualifying IOLTA accounts, but financial institutions do not have to create new products if the higher rate products are not already available to their other customers. A number of IOLTA programs in other states have similar rate parity provisions. Of course, neither lawyers nor clients lose any funds since IOLTA only involves funds that a lawyer would not otherwise invest on the clients behalf because those funds would not produce income over the costs of investing them.
"This rule change assures that the IOLTA program will get comparable treatment by receiving the same interest rates as non-IOLTA accounts," said Elwood F. Cahill, Jr., Louisiana Bar Foundation President. "This is truly a great day for Louisiana and all of the legal services programs supported by the Louisiana Bar Foundation."
IOLTA participation remains voluntary for financial institutions; however lawyers may not keep an IOLTA account at an institution that does not participate or meet IOLTA requirements. Virtually all banks and savings and loan associations in Louisiana have participated in IOLTA since its inception. Most appear on the IOLTA Honor Roll because they have waived all IOLTA account fees to make more charitable grant dollars available.
The Louisiana Bar Foundation (LBF) is currently working with financial institutions in Louisiana to become eligible institutions, which would mean lawyers who have IOLTA accounts at those banks would not be required to take any action at all. If financial institutions choose not to pursue eligibility, lawyers will be required to move their IOLTA accounts to an eligible institution. The LBF will advise lawyers if they will be required to make such a move, but this has not been necessary in any of the other states that have already adopted a comparability rule. Among the states that have previously made the rule change are Florida, Texas, Mississippi, Alabama and Arkansas.
Commenting on the amendments to Rule 1.15 of the Rules of Professional Conduct and the IOLTA Rules, Chief Justice Pascal F. Calogero, Jr. stated, "The new rate comparability rules and regulations permit IOLTA accounts to generate higher rates of return that are now available principally to non-IOLTA customers. It is hoped that these rule changes will result in increased income to the Bar Foundation which, in turn, will result in increased funding for programs that provide legal services to our poorer citizens, as well as for other meritorious programs that benefit the public and the legal system of Louisiana. I would also like to compliment the officials of the Bar Foundation and the Bar Association who worked tirelessly to reach a consensus on these rule changes."
The LBF worked closely with the Louisiana Supreme Court and the Louisiana State Bar Association to study the implications of this rule change. "We are grateful to the Louisiana Supreme Court for adopting the amendments to Rule 1.15 and are fortunate to have the Courts support of increased funding for legal services," said S. Guy deLaup, Louisiana State Bar Association President.
The IOLTA program was created by the Louisiana Supreme Court in 1985 and generates interest that helps finance civil legal services for the poor. The interest earned on these accounts is distributed by the LBF to Louisianas legal service providers, pro bono programs, battered women shelters and numerous other community organizations that provide civil legal assistance to Louisianas poor. To date, the LBF has distributed more than $32 million throughout the state to help address the civil legal needs of the indigent, provide a basic understanding of the law and assist with improvement to the justice system.