From being able to compete withbanks to assuring business members that their funds are insured,there could be several long-term benefits for credit unions if abill involving insurance coverage becomes law.

Introduced Nov. 13, the House Financial Services Committeeapproved the bill, the Credit Union Share Insurance Fund Parity Act (H.R. 3468), by avoice vote Nov. 14. The legislation would establish parity withbanks for escrow accounts including extending share insurancecoverage to interest on lawyers trust accounts.

With IOLTAs, attorneys routinely hold funds in trust for clientsto pay costs related to legal services such as court filings,depositions and business transactions. Interest from the short-termtrust accounts is typically paid to a nonprofit foundation forprograms to provide legal services to the poor, elderly anddisabled.

According to iolta.org, more than 5,500 financial institutionsmaintain the accounts, including roughly 100 credit unions. Thosenumbers could significantly increase if H.R. 3468 becomes law.

The $268 million Maine Savings Federal Credit Union is one of 10 credit unionsin the state that maintain IOLTAs, said Vanessa Madore, assistantvice president of risk management. The Hampden, Maine-based creditunion is the only “Prime Partner” among the Maine Bar Foundation'seight financial institutions that offer IOLTAs, according to thefoundation.

Prime Partner institutions are those that go above and beyondthe eligibility requirements of to support the IOLTA program in itsmission to ensure that low-income Maine residents have access tocritically needed legal aid, the Maine Bar Foundation said. Thepartners pay a net interest rate on all IOLTA funds of at least 75%of the Federal Funds Target Rate or 2.00% annual percentage rate,whichever is higher.

Madore said Maine Savings FCU started looking at IOLTAs in 2009because some of its business members were clients of a localattorney. After a 2007 Maine Supreme Court ruling that allowed theacceptance IOLTA deposits for all deposits at low-income designatedcredit unions, Madore wondered if there was a chance that some ofthose relationships with business members would be lost if theMaine Savings FCU didn't offer IOLTAs, she recalled.

After some discussions with the credit union's president/CEO,John Reed, and the Maine Bar Foundation, the cooperative beganoffering the accounts in June 2009 to eliminate the possibility ofsevered alliances with some of its business members. Maine SavingsFCU currently offers three IOLTAs, which are primarily used forreal estate transactions.

Madore said passage of H.R.3468 would have a far-reaching impactfor credit unions and their efforts to woo and keep businessmembers.

“It's a simple fact that the share insurance fund does not covernon-member accounts. That was something we had to let our membersknow about,” Madore said. “That being said, we've had a number ofcalls from attorneys wanting to establish the accounts. In fulldisclosure, we share the part about the insurance coverage and thatseals the deal for them to go the local bank competitor.”

Prior to the Maine Supreme Court ruling, the Maine Credit Union League fought heavy opposition against afalse perception that consumers would think putting money in acredit union was somehow less secure and safe than other financialinstitutions, the league said at the time.

Rod Rovzar, outside general counsel to the Maine CU League andan attorney with Norman, Hanson & DeTroy LLC in Lewiston,Maine, said credit unions have been yearning for a bill such asH.R. 3468.

“It's a long time coming and it's another step that helps levelthe playing field,” Rovzar said. “Particularly, in Maine, we havelarge areas of the state that are not served by financialinstitutions yet, there is good credit union coverage. This wouldbe a boon to consumers and businesses, especially law firms andreal estate brokers.”

Insured IOLTAs could potentially boost credit union accountgrowth including more mortgage lending opportunities, Rovzaroffered. While Maine credit unions' IOLTAs have nearly quadrupledfrom three to 10 since the state's Supreme Court ruling, he saidthere is still much more room for involvement.

“Some of the credit unions have looked at IOLTAs off and on. Ifthis new legislation can wind its way through Congress, frankly, Isee more credit unions participating,” Rovzar said. “I don't thinkit's a secret that there will be miles to go before we sleep.”

Next Page: Resistance in WashingtonState

Washington credit unions faced similar resistance a few yearsago when the Washington Credit Union League fought to keep credit unions ona list of financial institutions eligible to offer IOLTAs despiteopposition from the Washington State Bar Association.

In August 2006, Washington credit unions faced similarresistance a few years ago when the Washington Credit Union Leaguefought to keep credit unions on a list of financial institutionseligible to offer IOLTAs despite opposition from the WashingtonState Bar Association. In August 2006, the Washington Supreme Courtruled credit unions could continue their IOLTA use.

The WSBA argued at the time that because trust accounts must beinsured and the NCUA only insured attorney trust accounts holdingclient funds belonging to credit union members, the associationbelieved that NCUA would not insure accounts that held non-creditunion member funds even though the trust accounts belonged to acredit union member, for example, the attorney. The WSBA alsobelieved that since only a very small number of Washingtonattorneys housed their trust accounts in credit unions, it wasrecommended that credit unions be removed from the list offinancial institutions allowed to offer IOLTAs.

The Washington CU League merged with the Oregon Credit UnionLeague in 2011 to become the Northwest Credit Union Association. Lynn Heider, vice presidentof public relations and communications of the merged association,said after checking, there wasn't any regional information to addon account activity. According to the Legal Foundation ofWashington, approximately six credit unions in Washington maintainIOLTAs.

The $2.2 billion Coastal Federal Credit Union in Raleigh, N.C., had someinterest in IOLTAs but decided not to pursue them due to concernswith regulatory hurdles involving the lack of insurance unless thefunds belonged to members, said Willard Ross, senior vice presidentand chief retail officer. The credit union currently has one IOLTAthat contains members' funds with an attorney who handles many ofCoastal's mortgage closings.

According to the North Carolina State Bar, all attorneys thathold money in trust for the clients must obtain an IOLTA. On Oct.11, 2007, the North Carolina Supreme Court ordered the NCSB toimplement a mandatory IOLTA program for lawyers that went intoeffect Jan. 1, 2008. Under revised rules, except for certainexemptions, lawyers must certify annually that all general clienttrust accounts maintained by the lawyer or law firm are IOLTAs, theNCSB said.

Ross said the House Financial Services Committee's recent voicevote approving the bill that would extend share insurance coverageto IOLTAs is a promising step.

“I do think it could have a positive effect for credit unionsbecause it can provide a low-cost source for significant deposits,”Ross said. “More and more credit unions are getting loaned upagain. I know we're up there. It's time to grow deposits. Thelegislation would be very positive.”