A DISCUSSION ABOUT INSURED IOLTAS FDIC
« Back Main Menu Next » UPDATE: On Wednesday, December 29, 2010, President Obama signed into law H.R.6398, an act to require the FDIC to fully insure Interest on Lawyers Trust Accounts (IOLTAs) under the temporary coverage provisions in Section 343 of the Dodd-Frank Act. This means that IOLTAs at FDIC-insured institutions will be provided the same deposit insurance coverage as noninterest-bearing transaction accounts
beginning December 31, 2010 and ending on December 31, 2012.
Previous Allowance for IOLTAs
On November 26, 2008, the FDIC issued its final rule which classified Interest on Lawyer Trust Accounts (IOLTAs) as "non-interest bearing" accounts for purposes of the Transaction Account Guarantee (TAG) program. Since Community Bank of San Joaquin participated in this program, the funds in these accounts were guaranteed in full under TAG.
In order for the funds of each individual client to be insured or guaranteed, attorneys that have IOLTAs established at any institution that participated in the TAG program must have accurate records reflecting that the IOLTA account is a fiduciary account and how much is held in trust for each client. Poor trust accounting records can cause the loss of insurance, so make sure your records are in order. FDIC's Final Rule Regarding IOLTAs and TAG
The following information is an excerpt of the FDIC's Temporary Liquidity Guarantee Program; Final Rule (12 CFR Part 370) as it related to IOLTAs: In general, for purposes of the Transaction Account Guarantee Program, the FDIC wishes to maintain the distinction between (1) noninterestbearing accounts and (2) interest-bearing accounts. As discussed below, however, the FDIC has decided to create certain exceptions. First, the FDIC has decided to create an exception for
IOLTAs. As noted by the commenters, the interest on IOLTAs does not inure to the benefit of either the law firm or the clients. Thus, from the perspective of the law firm and the clients, the account produces the same economic result as a noninterest-bearing transaction account. For this reason, the FDIC has amended the definition of "noninterest-bearing transaction account" to include IOLTAs. In providing protection to IOLTAs, the FDIC also includes attorney trust accounts designated as
"IOLAs" or "IOTAs" (as such accounts are designated in some states). The FDIC will treat all such accounts as IOLTAs for purposes of the Transaction Account Guarantee Program. Accordingly, in the Final Rule the FDIC has provided that the term "noninterestbearing transaction account" shall include IOLTAs (or IOLAs, or IOTAs). As a result, assuming that the other requirements of the Transaction Account Guarantee Program are met by a participating entity and irrespective of the
standard maximum deposit insurance amount defined in 12 CFR Part 330, IOLTAs will be guaranteed by the FDIC in full as noninterest-bearing transaction accounts. The complete TAGP Final Rule document is available online at http://www.fdic.gov/news/board/08BODtlgp.pdf. | 
