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.