Maryland Bar Bulletin
Publications : Bar Bulletin : June 2007

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Maryland lawyers strongly support IOLTA because it generates funding for civil legal services to the state’s poor. Over the years, MSBA has backed IOLTA-friendly legislation and court rules to enhance revenue for Interest on Lawyer Trust Accounts (IOLTA), encouraged members to conduct law firm businesses with state banks offering the highest interest rates, and even created an Honor Roll for financial institutions that support IOLTA. Now, MSBA has taken its support for IOLTA one step further, adopting a resolution favoring an IOLTA Comparability Rule to increase revenue for legal services in Maryland.

Adoption
of this provision would dramatically enhance IOLTA revenue and greatly enhance and improve the ability of legal services providers to meet the legal needs of low-income Marylanders.

Susan Erlichman
MLSC Executive Director

An IOLTA Comparability Rule, a recent innovation in IOLTA programs across the country, “requires banks that participate in IOLTA to provide comparable rates of return to their IOLTA customers as is paid to the bank’s best non-IOLTA customers with comparable balances and comparable banking needs.” Thirteen states have now enacted Comparability Rules and all have seen a dramatic rise in IOLTA income, ranging from 100-300 percent. This has enhanced revenue earmarked for legal services to the poor.

According to Susan Erlichman, Executive Director of the Maryland Legal Services Corporation (MLSC), IOLTA Comparability Rules have emerged as a result of continuing low IOLTA interest rates over the last two years at a time when interest rates in general were steadily climbing. “Since June 2004, the Federal Reserve Bank has increased the Federal Funds Rate 17 times, from a historic low of 1 per cent to the current rate of 5.25 percent,” she reports. However, IOLTA programs have seen little, if any, increase in IOLTA interest rates, which still hover around .59 percent.

This trend has hurt legal services in Maryland. IOLTA revenue, which is mandatory for all attorney trust accounts in Maryland, is the primary funding source of legal services to the poor. IOLTA funds are channeled to MLSC, which financially supports a network of 28 legal services programs, including the Legal Aid Bureau. IOLTA revenue normally accounts for 60 percent of MLSC’s funding; the balance is generated through filing fees and an annual appropriation from the State Unclaimed Property Fund.

Today, most banks still pay “less than one-half of one percent interest rates on IOLTA accounts,” laments Erlichman.“This is well below a reasonable rate of return given the Federal Reserve Target Rate and well below rates that are paid to similarly situated non-IOLTA bank customers.” To elevate IOLTA rates in Maryland banks, and thus legal services funding, MLSC is urging the Court of Appeals of Maryland to adopt an amendment to Maryland Rule 16-610 to provide for IOLTA rate comparability. MLSC has called on MSBA and Maryland’s “access to justice community” to support this effort.

“A Maryland IOLTA Comparability Rule would ensure that Maryland attorneys earn no less on IOLTA accounts than the rate of return generally paid to the financial institution’s non-IOLTA customers on comparable accounts when the IOLTA account meets or exceeds the same minimum balance, and other account eligibility requirements, if any,” explains Erlichman. “Adoption of this provision would dramatically enhance IOLTA revenue and greatly enhance and improve the ability of legal services providers to meet the legal needs of low-income Marylanders.”

On April 17, MSBA’s Board of Governors passed a resolution supporting an IOLTA Comparability Rule as it will expand access for legal services to the poor. “The ‘Comparability Rule’ will have the immediate benefit of increasing monies paid to MLSC by financial institutions based on interest earned in IOLTA accounts,” states Edward J. Gilliss, MSBA President.

“MSBA’s Mission Statement calls on the Association to promote access to justice and respect for the rule of law,” MSBA’s President continues. “MSBA furthers accomplishing these missions by increasing the interest rate paid on IOLTA accounts, thereby ensuring that MLSC (and, through it, other legal services providers) have additional monetary resources to better deliver services to our community’s less fortunate.”

Background

Created by the Maryland General Assembly in 1982, IOLTA remains one of the state’s primary funding sources for civil legal services for Maryland’s low-income citizens today. At the time of the program’s inception, interest rates paid on IOLTA accounts averaged approximately 5.5 percent. When interest rates began slipping, IOLTA account rates also dropped, causing painful cuts in legal services funding for the indigent.

In mid-2003, short-term federal funds rate dropped to an unprecedented low of 1 percent along with rates on IOLTA accounts. The net yield paid on IOLTA deposits at fell to approximately .5 percent and revenue dropped precipitously. In 2004, the Maryland General Assembly passed an increase in court filing fee surcharges to help fund civil legal services. This averted a crisis.

When the interest rate environment began to turn around at the end of 2004, the Federal Reserve Board steadily raised its short-term target rate and it hit 4.75 percent – its highest level in five years. Yet, Maryland IOLTA rates did not bounce back, remaining only .59 percent. In 2006, when MSBA issued an attorney alert asking Maryland attorneys to encourage their banks to raise IOLTA interest rates and support legal services to the poor, many attorneys complied. In the end, several banks raised their IOLTA interest rates, but most did not.

Therefore, MLSC is now seeking a Comparability Rule to push up IOLTA interest rates. The legal profession’s solid support of this Rule demonstrates that lawyers care that poor people have access to civil legal services. The Court of Appeals’ Rules Committee will hold a hearing on this proposed Rule on June 22, 2007.

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Publications : Bar Bulletin: May  2007