Maryland Bar Bulletin
Publications : Bar Bulletin : April 2009


As interest rates drop, IOLTA revenue drops. In the last two years, IOLTA revenue has fallen more than 70 percent, at a time when this funding is direly needed to support the soaring number of poor people seeking free civil legal services. IOLTA is in trouble, which means a crisis looms for civil legal services funding in Maryland.

As the economy worsens, more people are losing their jobs, their income, their health benefits, their savings and their homes. Thousands of Marylanders are in need of free civil legal services and have turned to one of the Maryland Legal Services Corporation’s network of 38 legal services providers, funded by Interest on Lawyer Trust Account (IOLTA) revenue, for assistance.

But IOLTA funding, generated by attorneys voluntarily donating the interest on their trust accounts to free civil legal services for the poor, is down significantly. IOLTA revenue declined 51 percent for 2009 (see chart Page 16) and the projected loss for 2010 is an additional 39 percent drop. If this pattern continues, 2011 could prove devastating for legal services to Maryland’s needy.

Ironically, revenue is falling at a time when unemployment, foreclosures and the need for legal assistance have hit record highs, with no relief in sight. As interest rates drop, IOLTA money drops, and with the Federal Reserve rate now hovering at zero, IOLTA revenue is close behind. “This crisis is unprecedented in the history of IOLTA,” laments Susan M. Erlichman, Executive Director of the Maryland Legal Services Corporation (MLSC), the non-profit group that oversees and funds a network of 38 legal services providers in the state, “without any state government funding.”

“What is staggering,” she states, “is the alarming number of people who need legal assistance and have never been eligible for these programs before, but are now.” Maryland’s unemployment rate is at a 15-year high, Erlichman adds, the number of applications for food stamps rose 35 percent last year and 420,000+ Maryland families are now on food stamps. Foreclosures in the state are at a record high as well, and “initial projections would suggest it is all going to be much higher in 2009.”

There has truly been a head-on collision between the swiftness and severity of IOLTA’s decrease in revenue and the overwhelming increase in the need for civil legal services to the poor. Across the country, legal services programs are reeling from the repercussions of this collision and many have been forced to cut services and staff due to a dearth of funding. So far, Maryland’s IOLTA program is weathering the storm, thanks to the “responsible reserve emergency fund” MLSC has maintained over the years. But this can quickly vanish, too, given our dismal economic crisis.

In the coming year, MLSC’s emergency fund will be used to supplement the 51 percent drop in IOLTA income. “We are able to meet our current grant commitments, which end June 30, 2009, only because of this emergency fund,” asserts Erlichman. “We will be spending aggressively in this reserve fund to make our 2010 grants, and we will be eliminating all grants except our core operational ones.” And, MLSC will still have to reduce its core operating grant level by roughly 25 percent for Fiscal Year 2010.

“Even in the best of times,” MLSC Chair F. Vernon Boozer stresses, “MLSC is only able to meet 25 percent of the need. Cutting back on grants at a time when unprecedented numbers of Marylanders find themselves falling on hard time and needing legal assistance is particularly devastating.”

“IOLTA revenue has always been a cyclical funding source,” stresses Erlichman. “It will always be subject to the vagaries of the economy.” It has actually been a rocky road for the last 27 years, and MLSC has instituted numerous measures along the way to address the fiscal challenges it periodically faces.


Created by the Maryland General Assembly in 1982 to serve as the state’s primary funding source for civil legal services for the indigent, IOLTA was launched when the interest rate averaged 5.5 percent. However, in the ’90s the country hit a rough spot and interest rates began to slide, as did IOLTA revenue. This precipitated cuts in legal services funding for the state’s indigent.

By 2003, the interest rate had dropped to an unprecedented 1 percent and rates on IOLTA accounts followed. The net yield on IOLTA deposits actually fell to .5 percent and revenue dropped sharply. In 2004, the Maryland General Assembly passed an increase in court filing fee surcharges to help fund civil legal services. This averted a crisis.

Ironically, when the interest rate environment began to turn around at the end of 2004, the Federal Reserve Board rates steadily rose to 4.75 percent, but the Maryland IOLTA rates did not, staying at .59 percent. To address this situation, the Maryland State Bar Association stepped in and issued an attorney alert in 2006 asking Maryland attorneys to encourage their banks to raise IOLTA interest rates and support legal services to the poor. Many attorneys complied and several banks raised their IOLTA interest rates, but most did not.

Next, MLSC and MSBA created an IOLTA Honor Roll recognizing all financial institutions that paid a favorable net yield on IOLTA accounts to help support civil legal services for the poor.(see Honor Roll this page) MSBA then encouraged attorneys to do their banking with Honor Roll banks. Again, many attorneys complied and a number of banks signed on.

To further enhance revenue, the Court of Appeals of Maryland amended Rule 16-610 of the Maryland Rules of Procedure, governing attorney trust accounts, last April, “to ensure that financial institutions that participate in the IOLTA program pay interest rates on IOLTA deposits comparable to other similarly situated accounts.” This IOLTA Comparability Rule required banks participating in IOLTA to provide the same rates of return to their IOLTA customers as they do to their commercial customers. IOLTA revenue spiked.

Then the crisis hit. Interest rates dropped to just above zero and IOLTA revenue plummeted 51 percent, with another 39 percent hit expected in FY 10. “We have certainly had crises in the past, where we had significant declines in income,” cautions Erlichman, “but this is the worst it has ever been.”

MLSC is making an appeal to the state legislative leadership for help in the form of state funding to supplement the severe loss of IOLTA income to meet the needs of the growing number of poor people needing free civil legal services. It has also met with Chief Judge Robert M. Bell, Court of Appeals of Maryland, and is working with the Court’s Commission on Access to Justice to address this crisis and enhance funding for legal services.

There is some good news, however. MLSC’s Executive Director is happy to report that several banks have signed up for the newly revised Honor Roll, pledging to pay a minimum of 1 percent on IOLTA accounts. “These banks are true champions of justice.”

“We are doing the best we can in the coming year,” promises Erlichman, “to address this situation in a way that does the least amount of harm to the state’s legal services delivery system and the people who so desperately rely on it. It is my sincere hope that we will eventually be able to fill this IOLTA revenue gap with state funding.”

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Publications : Bar Bulletin: April 2009

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