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November 10, 2008
FDIC DEPOSIT INSURANCE MUST BE EXTENDED TO IOLA
ACCOUNTS, SAYS NEW YORK STATE BAR ASSOCIATION PRESIDENT BERNICE K.
LEBER
Monies generated through Interest on Lawyer Accounts (IOLA) for civil
legal services for the poor could be in jeopardy because of an oversight
in the FDIC’s recent deposit insurance proposal, said Bernice
Leber, President of the New York State Bar Association.
“In New York, the revenues generated from IOLA provide a
critical source of funds for civil legal services to those who can least
afford to pay for them,” said Leber. “In the midst of
the economic crisis that is upon us, not to mention the $12 billion
looming state budget deficit that will make it even more challenging for
our state’s leaders to provide funding for these vital services,
IOLA funding has an even more important role for the poor.”
Pursuant to New York Judiciary Law, lawyers must deposit
clients’ money in interest bearing IOLA accounts. The
accrued interest from these accounts is pooled and used to fund civil
legal services for the poor. Along with New York, 36 other states
require lawyers to deposit client funds that cannot earn net interest
for the client in these interest-bearing accounts.
The Temporary Liquidity Guarantee Program (TLGP) recently proposed
by the FDIC, however, would provide unlimited deposit insurance
protection, but only on non-interest bearing accounts. Attorneys
holding significant client funds are faced with a quandary as to whether
to continue to use their interest-bearing IOLA accounts or to place
those funds in a non-interest bearing deposit transaction account in
order to qualify for TLGP.
President Leber recently sent letters to members of Congress
and the FDIC, and has encouraged bar leaders across the nation to
support the New York State Bar Association in persuading the FDIC to
grant an exception in the new TLGP proposal.
“Now is not the time to undermine IOLA and the services
IOLA funds support,” Leber continued. “Especially when
foreclosures and evictions are mounting, when poor people – from
single mothers to the elderly, from those faced with evictions to those
in danger of domestic violence – are in an increasingly precarious
position, we must do everything we can to ensure that this important
source of funding does not diminish. The TLGP must expressly
include an exception providing that funds in IOLA accounts will have
unlimited deposit insurance coverage regardless of dollar amounts, thus
ensuring that vital civil legal services are available to those who need
them.”
The New York State Bar Association has been a recognized leader in
educating citizens about important issues that impact the public’s
interest. It is committed to working with Congress, state
government leaders, and representatives of the financial industry to
fashion solutions that meet the needs of the people during these
difficult times.
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