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Requiring FDIC to Fully Insure Interest on Lawyers Trust Accounts

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Date:
Location: Washington, DC

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Mrs. BIGGERT. I yield myself such time as I may consume.

Mr. Speaker, I rise in support of H.R. 6398, which would extend the current Federal Deposit Insurance Corporation's, or FDIC's, guarantee of Interest on Lawyer Trust Accounts, also called IOLTAs, for another 2 years.

I would also like to thank my colleague from Texas (Mr. Doggett) for introducing this corrections bill to amend the Dodd-Frank Act.

The IOLTA program represents a significant source of financial support to civil legal aid programs for the poor. These programs operate in all 50 States. In 37 States, including my home State of Illinois, they are mandatory. IOLTAs contain client funds held by a lawyer for a short period of time. Interest generated from these accounts is paid to charitable organizations, not to the lawyer or the client.

In 1978, Florida was the first State to establish an IOLTA program. Illinois became the 11th State to establish IOLTAs, and in 1983, the Supreme Court of Illinois required that the interest from these accounts be collected and administered by the Lawyers Trust Fund, a not-for-profit corporation created in 1981 by the Illinois State Bar Association and the Chicago Bar Association. Since then, these funds have supported civil legal assistance to the impoverished in Illinois.

When State legislatures and State supreme courts created IOLTA, the FDIC carved out an exception to Regulation D that allowed the payment of interest on these demand accounts.

The current Term Asset Guarantee program, or TAG program, under which the FDIC guarantees the total amount of client funds maintained in IOLTAs, expires December 31, 2010. The Dodd-Frank Act creates an equivalent program, running for 2 years beginning January 1, 2011, but makes several changes, including a more narrow definition of a ``covered account.'' In what appears to have been a drafting error, IOLTAs were not covered under the new program established by the Dodd-Frank Act. This bill corrects that inadvertent omission so that IOLTAs are fully insured.

If the current guarantee were allowed to lapse, attorneys in the 37 States with IOLTA mandates, acting in accordance with their fiduciary duties to maintain the security of the client funds, might be forced to transfer IOLTA accounts from local community banks to larger, safer institutions, and attorneys in the other jurisdictions might be forced to transfer funds from IOLTA accounts to non-interest-bearing accounts to qualify for unlimited FDIC coverage. If the coverage for these accounts is not extended, a critical source of civil legal aid might unnecessarily and inappropriately shrink. In addition, according to the Independent Community Bankers of America, the ICBA, ``without this coverage, potentially hundreds of millions of dollars will be withdrawn from IOLTAs, adversely impacting liquidity in the banking system with a disproportionate impact on community banks.''

This bill is supported by the ICBA and the American Bar Association. The Congressional Budget Office has determined that, although the bill costs $15 million over a period of 5 years, the bill would raise $2 million over a 10-year period.

I again urge support for the legislation, and I yield back the balance of my time.

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