AUGUSTA, Maine -- Despite questions on certain eligibility criteria, the Maine Supreme Court recently ruled that all of Maine credit unions could indeed offer interest on lawyers trust accounts or IOLTAs.
With IOLTAs, attorneys routinely hold funds in trust for clients to pay costs related to legal services like court filings, depositions and business transactions. If these funds are large or held for a long period of time, the attorney customarily deposits these monies in an interest-bearing account for the benefit of the client. Interest from collective, short-term trust accounts is paid to a non-profit foundation for programs like providing legal services to the poor.
In September, the Maine Supreme Court ruled that credit unions may accept IOLTA deposits for all deposits at low-income designated credit unions regardless of membership status and for funds deposited that belong to a member of the credit union question. The rule takes effect Jan. 1, 2008. Once voluntary, attorneys will now be required to have IOLTAs. In addition, in order to be eligible institutions to hold IOLTA funds, credit unions and banks will have to offer the same interest rate or dividend rate on other accounts.
The Maine Credit Union League had been working behind the scenes to have credit unions included in IOLTA use. The Maine Bar Foundation sought to limit use to credit unions with a low-income designation.
"One of our biggest concerns with this case was that we felt that had credit unions not been able to offer IOLTAs, it would have given the false perception to consumers that putting money in a credit union was somehow less secure and safe than other financial institutions," said John Murphy, president of the Maine CU League in a statement.
Adrian Kendall, an attorney with for Norman, Hanson & DeTroy and counsel for the league in this case, said "The court fully adopted our position that state and federal credit unions that are federally insured should be able to offer IOLTA accounts."
"This result is a total vindication of the position that was presented on behalf of Maine's credit unions and is all the more meaningful given the fact that the Maine Bar Foundation had sought to disqualify Maine credit unions entirely from participation in the IOLTA program," Kendall said.
The Maine Bar Foundation tried to convince the court to limit credit union IOLTA participation to only those credit unions with a low-income designation, but the Court also rejected that argument. Calien Lewis, executive director of the foundation, said is was their understanding that the accounts were not insured at credit unions and felt it was "not a good practice to require money to be in placed in institutions where money could not be insured." The foundation has since embraced the court ruling to include all credit unions, not just low-income ones.
"We're thrilled with the rule change," Lewis said. "The more institutions that participate, the merrier."
Lewis said there are currently three Maine credit unions offering IOLTAs. She encouraged credit unions nationwide to check whether their states permit use of the accounts by logging on to www.iolta.org.
"We're delighted to have all credit unions included," Lewis emphasized.
Meanwhile, the league contends it fought hard for credit unions.
"We faced significant opposition to our position in this case but, working with our counsel, and with support from the Bureau of Financial Institutions, we successfully argued and presented our position before the Maine Supreme Court," Murphy said.
While the numbers are still small, according to the league, "the real issue is that more will [have the IOLTA option] in the future as a result of the recent ruling."
"We feel strongly about preserving consumer choice and believe that fair competition in the marketplace can benefit Maine consumers by continuing to provide greater choice and promote higher rates on savings, and lower interest rates and fees. We are pleased that the Maine Supreme Court agreed with our position and that credit unions prevailed," Murphy said.
Washington credit unions faced similar resistance when the Washington Credit Union League fought to keep them on a list of financial institutions offering IOLTAs despite opposition from the Washington State Bar Association. In August 2006, the Washington Supreme Court ruled credit unions could continue their IOLTA use. WSBA argued that because trust accounts must be insured and NCUA only insured attorney trust accounts holding client funds belonging to credit union members, the association believed that NCUA would not insure accounts that held non-credit union member funds even though the trust accounts belonged to a credit union member, for example, the attorney. WSBA also believed that since "only a very small" number of Washington attorneys housed their trust accounts in credit unions, it was recommended that credit unions be removed from the list of financial institutions allowed to offer IOLTAs.