On December 29, 2010, President Barack Obama signed into law legislation that extends unlimited FDIC protection for Interest on Lawyer Trust Accounts (IOLTA) through 2012. The law closes an inadvertent loophole created earlier this year by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Previously, IOLTA accounts were included in legislation passed in 2008 that provided full insurance protection from the Federal Deposit Insurance Corporation (FDIC) through 2010. But due to wording in the new financial reform law, the definition of a “covered account” was narrowed in a way that would not have continued the unlimited coverage for IOLTA accounts. An extraordinary team effort led by the American Bar Association, and in which the MSBA, Maryland Access to Justice Commission and Maryland Legal Services Corporation participated, produced a victory for both lawyers and their clients as well as funding for legal aid: during the just-concluded “lame duck” session, Congress fixed the financial reform legislation to extend full FDIC coverage to IOLTA before the Dec. 31, 2010, expiration date.
Any notice that lawyers may have received from their banks stating that IOLTA will no longer have unlimited FDIC coverage as of January 1, 2011, should be disregarded. Below is a link to the updated information provided on the FDIC’s website regarding this issue: www.fdic.gov/deposit/deposits/changes2.html.