RALEIGH, N.C. -- Hoping to build more relationships with localattorneys, Coastal Federal Credit Union has joined the short listof credit unions that are now offering interest on lawyer's trustaccounts or IOLTAs.

With IOLTAs, attorneys routinely hold funds in trust for clientsto pay costs related to legal services like court filings,depositions and business transactions. Interest from the short-termtrust accounts is paid to a nonprofit foundation for programs tolegal services to the poor, elderly and disabled.

The $2 billion Coastal FCU said its IOLTAs feature no monthlymaintenance fees, minimum balance requirements and unlimitedmonthly deposit and withdrawals. The credit union said it willforward all dividends from the account, net of service charges, tothe North Carolina State Bar IOLTA program.

According to the North Carolina State Bar, all attorneys thathold money in trust for the clients must obtain an IOLTA by June30. On Oct. 11, 2007, the North Carolina Supreme Court ordered theNorth Carolina State Bar to implement a mandatory IOLTA program forlawyers in North Carolina effective Jan. 1, 2008. Under revisedrules, lawyers must certify annually that all general client trustaccounts maintained by the lawyer or law firm are IOLTA accounts.Lawyers are exempt from the program if they do not handle clientfunds because they are not in private practice, their law firm doesnot maintain general client trust accounts in North Carolina orthey do not practice in North Carolina.

Since its first grants were made in 1984, North Carolina IOLTAshave provided more than $50 million to provide legal assistance forat-risk children, the elderly, the disabled and the poor in need ofbasic necessities, and to help lawyers connect with those who needtheir 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 noninterestbearing accounts to lawyers. They could not earn interest on theaccounts unless they turned the income over to the North CarolinaBar Association, which in turned used the funds to provide civillegal service to the poor through grants made to staffed legalservices programs and volunteer lawyer programs.

Coastal FCU has several IOLTAs but the numbers are notsignificant, Wilson said.

"This will help us build better relationships within the legalcommunity. We've been around for 40 years so we know a lot of localattorneys," Wilson said.

Figures are not available on the total number of credit unionsnationwide that offer IOLTAs but based on the listing in otherstates, the offering is not widespread. According to the NationalAssociation of IOLTA Programs and the American Bar AssociationCommission on IOLTA (www.iolta.org), more than 5,500 financialinstitutions offer IOLTAs.

Coastal FCU's entry began with a member who is an attorney, saidWillard Ross, chief retail officer.

"[The attorney] helps a lot of members. When North Carolina lawchanged, we stood a chance of losing a sizeable account," Rosssaid. "We looked in our membership based and found that we havequite a few other attorneys."

Unlike Washington and Maine, North Carolina didn't get anyresistance from banking and other groups on credit unions beingable to offer IOLTAs. In October 2007, the Maine Supreme Courtruled that the state's CUs could offer IOLTAs despite sometrepidation from the Maine Bar Foundation, which sought to limituse to CUs with a low-income designation. The foundation understoodthat the accounts were not insured at credit unions and felt it wasnot a good practice to require money to be in placed ininstitutions where money could not be insured." The foundation hassince embraced the court ruling to include all credit unions, notjust low-income ones.

In 2006, Washington CUs faced similar resistance from theWashington State Bar Association but the state's Supreme Courtruled in their favor. The bar association argued

that because trust accounts must be insured and NCUA onlyinsured attorney trust accounts holding client funds belonging tocredit union members, the association believed that NCUA would notinsure accounts that held noncredit union member funds even thoughthe trust accounts belonged to a credit union member, for example,the attorney. The bar association also believed that since only avery small number of Washington attorneys housed their trustaccounts in credit unions, it was recommended that credit unions beremoved from the list of financial institutions allowed to offerIOLTAs.

Wilson and Ross said in North Carolina, the law specificallystates that as long as the financial institution is federallyinsured, it can offer IOLTAs.

"It wouldn't surprise me that bankers would not like creditunions offering the accounts," said Ross, who started his career at$15 billion State Employees' CU, left to work for several savingsand loan banks, a large bank and then a community bank beforecoming to Coastal nearly six months ago. "The average balance ishigh and the typical rate is 0.3%."

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