Vol. 82, No. 4, April 2009
I understand that the Wisconsin Supreme Court is considering new rules regarding the interest paid on a lawyer’s trust account by the bank holding the trust account. What does this mean for Wisconsin lawyers?
The Wisconsin Supreme Court is giving final consideration to amendments to the trust account rules to clarify the requirement that a bank pay “comparable interest” on an IOLTA (Interest On Lawyer Trust Account) trust account. Revenue from the interest on IOLTA accounts is used to fund the Wisconsin Trust Account Foundation and its grants to providers of legal services for individuals with limited incomes. Banks currently pay interest on the funds held in IOLTA trust accounts as required by the trust account rule, SCR 20:1.15.
The rule change requires that a bank pay a similar interest rate on the proceeds in IOLTA trust accounts as is paid to similarly situated business accounts located in that bank or financial institution. An IOLTA trust account must meet the same eligibility requirements and deposit requirements as the business account in order to receive the comparable interest rate. There should be no change for Wisconsin lawyers and law firms because banks will be paying interest on the IOLTA account in the same manner as they currently do. The interest rate itself, however, may be higher than the rate previously paid on the account. In many instances, there will not be any change in the interest rate because the bank or financial institution already pays the same interest rate for IOLTA accounts as it pays for similarly situated business accounts.
The changes to the trust account rule give banks and other financial institutions more options for investing the funds held in IOLTA trust accounts to earn the higher rate of interest. The new language presented to the court for final review is the following:
(cm) IOLTA account requirements.
. . .
(4) Income requirements.
. . .
b. Interest and dividend requirements. An IOLTA account shall bear the highest non-promotional interest rate or dividend that is generally available to its non-IOLTA customers at the same branch or main office location when the IOLTA account meets or exceeds the same eligibility qualifications, if any, including a minimum balance, required at that same branch or main office location. In determining the highest rate or dividend available, the IOLTA participating institution may consider factors in addition to the IOLTA account balance that are customarily considered by the institution at that branch or main office location when setting interest rates or dividends for its customers, provided the institution does not discriminate between IOLTA accounts and accounts of non-IOLTA customers and that these factors do not include that the account is an IOLTA account. However, IOLTA participating institutions may voluntarily choose to pay higher rates.
c. IOLTA account. An IOLTA participating institution may establish an IOLTA account as, or convert an IOLTA account to, any of the following types of account, assuming the particular financial institution at that branch or main office location offers these account types to its non-IOLTA customers, and the particular IOLTA account meets the eligibility qualification(s) to be established as this type of account at the particular branch or main office location.
1. A business checking account with an automated or other automatic investment sweep feature into a daily financial institution repurchase agreement or open-end money market fund. A daily financial institution repurchase agreement must be invested in United States government securities. An open-end money market fund must consist solely of United States government securities or repurchase agreements fully collateralized by United States government securities, or both. In this subd. c. 1., “United States government securities” include securities of government sponsored entities, such as, but not limited to, securities of, or backed by, the federal national mortgage association, the government national mortgage association, and the federal home loan mortgage corporation.
2. A checking account paying preferred interest rates, such as money market or indexed rates.
3. An interest-bearing checking account such as a negotiable order of withdrawal (NOW) account or business checking account with interest.
4. Any other suitable interest-bearing or dividend-paying account offered by the institution to its non-IOLTA customers.
d. Options for compliance.
1. An IOLTA participating institution may establish the comparable product for qualifying IOLTA accounts, subject to the direction of the lawyers or law firm; or
2. An IOLTA participating institution may pay the highest non-promotional interest rate or dividend, as defined in subd. (cm)(4) b., less any allowable reasonable fees charged in connection with the comparable highest interest rate or dividend product, on the IOLTA checking account in lieu of actually establishing the comparable highest interest rate or dividend product.
e. Paying rates above comparable rates. An IOLTA participating institution may pay a set rate above its comparable rate(s) on the IOLTA checking account negotiated with WisTAF that is fixed over a period of time set by WisTAF, such as 12 months.
Dean R. Dietrich, Marquette 1977, of Ruder Ware, Wausau, is chair of the State Bar Professional Ethics Committee.
This language allows the financial institution selected by a lawyer for an IOLTA trust account to hold the funds in different revenue-producing vehicles at the direction of the lawyer. The lawyer may be required to sign certain documents to allow the bank to earn higher interest on the funds held in the IOLTA trust account but all the operational procedures of the trust account should remain the same. It is predicted that in many instances, the bank or financial institution will not change its processes whatsoever but will agree to pay the higher interest rate if it is not doing so already. The Wisconsin Trust Account Foundation will work directly with banks and financial institutions to assist them to meet the comparable interest requirements of this rule change. The Wisconsin Trust Account Foundation will also maintain a list of all of the banks and financial institutions in Wisconsin that have certified that they meet the requirements of the comparable interest rule so lawyers are assured that they are fully in compliance with the requirements of SCR 20:1.15. For more information about maintaining IOLTA trust accounts, visit the Wisconsin Trust Account Foundation Web site, www.wistaf.org.
The new changes in the trust account rule should not adversely affect lawyers and their relationships with their banks or financial institutions. Most banks and financial institutions currently pay the same interest rate on IOLTA accounts that they would pay to a similarly situated business account for another customer. The rule change merely codifies the requirement that the IOLTA trust account have the same interest rate applied to those funds as is applied to similarly situated business accounts.