Congress Passes Amended Dodd-Frank Act to Protect IOLTA Accounts

Last December, LACBA urged California Senators Dianne Feinstein and Barbara Boxer to lobby their colleagues in support of the passage of H.R. 6398, which would continue the full FDIC protection of lawyer trust accounts by amending Section 343 of the Dodd-Frank Act. On December 22, the House bill passed the Senate and was signed into law on December 29.

As securities law and regulation analyst Jim Hamilton explained, the Term Asset Guarantee program under which the FDIC guarantees the total amount of client funds maintained in lawyer trust accounts was due to expire on December 31, 2010, potentially placing IOLTA funding in grave danger. The Dodd-Frank Act, which was signed into law on July 21, 2010, created an equivalent program running for two years beginning January 1, 2011. H.R. 6398 corrects an inadvertent omission in Section 343 that left out lawyer trust accounts under the new program. Although lawyers cannot earn interest on client funds placed into these trust accounts, the banks where the accounts reside pay interest that goes to fund civil legal services for those who cannot afford them.1

Without the passage of H.R. 6398 to correct the drafting error that had omitted lawyer trust accounts, funding for legal services projects in California would have been severely diminished.

"While demands for IOLTA-funded legal services have steadily increased, funding has decreased, creating a paucity of service available to low-income residents in California who need legal assistance," said LACBA President Alan Steinbrecher. "This is good news for our members and LACBA projects, indeed all public interest legal organizations that receive IOLTA funding. We are pleased that LACBA played a supporting role in the passage of this important bill."

¹ The full text of Jim Hamilton's blog on passage of the amended Dodd-Frank Act can be read here.