RALEIGH, N.C. -- Hoping to build more relationships with local attorneys, Coastal Federal Credit Union has joined the short list of credit unions that are now offering interest on lawyer's 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. Interest from the short-term trust accounts is paid to a nonprofit foundation for programs to legal services to the poor, elderly and disabled.
The $2 billion Coastal FCU said its IOLTAs feature no monthly maintenance fees, minimum balance requirements and unlimited monthly deposit and withdrawals. The credit union said it will forward all dividends from the account, net of service charges, to the North Carolina State Bar IOLTA program.
According to the North Carolina State Bar, all attorneys that hold money in trust for the clients must obtain an IOLTA by June 30. On Oct. 11, 2007, the North Carolina Supreme Court ordered the North Carolina State Bar to implement a mandatory IOLTA program for lawyers in North Carolina effective Jan. 1, 2008. Under revised rules, lawyers must certify annually that all general client trust accounts maintained by the lawyer or law firm are IOLTA accounts. Lawyers are exempt from the program if they do not handle client funds because they are not in private practice, their law firm does not maintain general client trust accounts in North Carolina or they do not practice in North Carolina.
Since its first grants were made in 1984, North Carolina IOLTAs have provided more than $50 million to provide legal assistance for at-risk children, the elderly, the disabled and the poor in need of basic necessities, and to help lawyers connect with those who need their pro bono assistance, the bar association reported.
The IOLTAs are not new to Coastal FCU, said Larry Wilson, president/CEO. In the past, the credit union offered noninterest bearing accounts to lawyers. They could not earn interest on the accounts unless they turned the income over to the North Carolina Bar Association, which in turned used the funds to provide civil legal service to the poor through grants made to staffed legal services programs and volunteer lawyer programs.
Coastal FCU has several IOLTAs but the numbers are not significant, Wilson said.
"This will help us build better relationships within the legal community. We've been around for 40 years so we know a lot of local attorneys," Wilson said.
Figures are not available on the total number of credit unions nationwide that offer IOLTAs but based on the listing in other states, the offering is not widespread. According to the National Association of IOLTA Programs and the American Bar Association Commission on IOLTA (www.iolta.org), more than 5,500 financial institutions offer IOLTAs.
Coastal FCU's entry began with a member who is an attorney, said Willard Ross, chief retail officer.
"[The attorney] helps a lot of members. When North Carolina law changed, we stood a chance of losing a sizeable account," Ross said. "We looked in our membership based and found that we have quite a few other attorneys."
Unlike Washington and Maine, North Carolina didn't get any resistance from banking and other groups on credit unions being able to offer IOLTAs. In October 2007, the Maine Supreme Court ruled that the state's CUs could offer IOLTAs despite some trepidation from the Maine Bar Foundation, which sought to limit use to CUs with a low-income designation. The foundation understood 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.
In 2006, Washington CUs faced similar resistance from the Washington State Bar Association but the state's Supreme Court ruled in their favor. The bar association 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 noncredit union member funds even though the trust accounts belonged to a credit union member, for example, the attorney. The bar association 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.
Wilson and Ross said in North Carolina, the law specifically states that as long as the financial institution is federally insured, it can offer IOLTAs.
"It wouldn't surprise me that bankers would not like credit unions offering the accounts," said Ross, who started his career at $15 billion State Employees' CU, left to work for several savings and loan banks, a large bank and then a community bank before coming to Coastal nearly six months ago. "The average balance is high and the typical rate is 0.3%."