Court Approves Comparability Rule to Increase Funding for Legal Services to the Poor

On December 3, the Court of Appeals of Maryland approved an IOLTA Rate Comparability Rule for interest on lawyer trust accounts. Rule 16-610 has been amended, as of April 1, 2008, to require all banks in Maryland that offer IOLTA accounts to set lawyer trust account interest rates that are comparable to interest rates offered to their similarly situated non-IOLTA customers. The IOLTA Comparability Rule is expected to generate an additional $6 million in revenue, increasing total funding for legal services to the poor in Maryland to $12 million.

Maryland’s legal community, led by Maryland Legal Services Corporation (MLSC) Executive Director Susan Erlichman, supported this Rule change to increase legal services funding to better meet the civil legal needs of Maryland’s indigent.

“The IOLTA Comparability Rule will 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,” declares an ecstatic Erlichman. “Adoption of this new Rule will dramatically enhance IOLTA revenue and greatly improve the ability of legal services providers to meet the legal needs of low-income Marylanders.”

MSBA was quick to offer its support of the IOLTA Comparability Rule to increase IOLTA revenue and, thus, legal services funding. Armed with the backing of the legal community, MLSC held discussions with Chief Judge Robert M. Bell of the Court of Appeals, who presented it to the Court’s Rules Committee. After a hearing on December 3, the Court unanimously approved this new Rule.

An IOLTA Comparability Rule is a recent innovation in IOLTA programs across the country that has already proven successful. It “requires banks that participate in IOLTA to provide comparable rates of return to IOLTA customers as are paid to the bank’s best non-IOLTA customers with comparable balances and comparable banking needs,” explains Erlichman. Eighteen states, including Maryland, have now enacted Comparability Rules, and the existing 17 have seen a dramatic rise in IOLTA income, ranging from 100-300 percent, to enhance revenue earmarked for legal services to the poor.

“The Court adopted the changes to Rule 16-610 to ensure that attorneys receive fair rates of return on IOLTA deposits by requiring attorneys to place IOLTA funds in financial institutions that agree to pay comparable rates on IOLTA as paid to similarly-situated non-IOLTA customers,” adds Erlichman. “Plus, attorneys are required to only use banks and financial institutions that offer comparable IOLTA accounts.”

IOLTA comparability rates initially surfaced because IOLTA interest rates remained low over the last two years while rates steadily climbed in general. “Since June 2004, the Federal Reserve Bank has increased the Federal Funds Rate 17 times, from a historic low of 1 percent to the current rate of 5.25 percent,” she reports. However, IOLTA programs have seen little, if any, increase during this time.

Today, the vast majority of Maryland financial institutions continue to 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.” This hurts because IOLTA revenue, mandatory for all attorney trust accounts in Maryland, is the primary funding source of legal services to the poor.

Thus, MLSC sought an IOLTA Comparability Rule to boost legal services funding in Maryland. When the new Rule takes effect in April, Erlichman expects IOLTA rates in Maryland banks to climb. She estimates that the Rule could increase IOLTA revenue by $6 million, and “with the approximate $6 million currently generated by IOLTA, the total funding for legal services in Maryland will likely rise to $12 million,” virtually doubling in size.

MLSC is grateful to Maryland’s legal community for its solid support of this Rule. It shows that Maryland lawyers are very supportive and care about poor people having access to civil legal services.