What We Know and Don’t Know about IOLTA’s Future and How You Can Help
For the better part of ten years, IOLTA programs across the country have felt the impact of the long economic downturn and declining interest rates. Here in North Carolina, if you are an avid reader of the Journal, you have seen column after column lamenting the state of affairs for NC IOLTA, constrained in our ability to pass needed funds along to grantees due to the Great Recession. Of greatest concern during the downturn was the downstream impact of decreased revenue on low-income North Carolinians in need of legal aid. During this time, many of IOLTA’s continuing grantees—a core group of legal aid providers and administration of justice programs—experienced cuts from nearly all sources, some forced to lay off staff, trim programming, or close offices.
Shortly after I took the reins in my new role as executive director in 2017, State Bar President Gray Wilson suggested I write an article for the Journal about the future of IOLTA. As I continued to settle into my role, I was not sure what to put on paper and in print to go out to 28,000 lawyers about a topic which remains uncertain. I proceeded to submit articles on other topics of interest or direct our communications efforts toward more tangible issues that I could say something about with at least some certainty.
In the past year, the economy has improved and North Carolina’s IOLTA program has enjoyed the benefits of that improvement. Some of the increase in revenue came to us with relative ease—banks adjusted their rates on IOLTA accounts as positive adjustments were made to other products offered across the bank. It is always a great day in the office when we receive news of an impending increase or open a monthly remittance to find an upward adjustment has been made. Frankly, however, other increases were hard fought as we proactively undertook an evaluation last year which asked banks to review all of their products and requested adjusted rates on IOLTA accounts where a lag behind interest rates for other similar products was identified.
Last year, NC IOLTA saw an increase in year-to-year income of 67% compared to 2017. But what’s next? Current headlines note the slowing growth of the economy and forecast the potential for downward interest rate adjustments later this year. If these projections are correct, it appears that right on the heels of last year’s positive increases, we might again see some banks lower their interest rates with associated drops in our IOLTA revenue to follow. Since I started in 2017, together with the IOLTA Board, I have worked to consider the future for IOLTA in light of changes in the economy and the profession as the board sets IOLTA’s future course. While we cannot say for certain what the future may bring for IOLTA, this is what we do know.
What We Know
In all 50 states, the District of Columbia, the US Virgin Islands, and Puerto Rico, IOLTA programs have been established to provide funding for charitable causes, often focused, as is the case in North Carolina, on providing civil legal aid to individuals who are unable to afford an attorney. Leaders of our State Bar who were involved at the program’s inception have described the IOLTA concept to me as picking found money up off the sidewalk. The collection and use of revenue from interest earned on lawyers’ trust accounts is really a pretty simple concept, though one that required the creativity and perseverance of bar leaders, in other jurisdictions and in North Carolina, to become a reality.
Civil legal needs remain high. We do know that the vast need for the resources IOLTA provides persists and may be deeper than it ever has been. The IOLTA movement spread at a time of great need in the 1980s when the Legal Services Corporation was facing funding cuts and opposition. By every measure, the need for civil legal aid persists today. According to a report by the North Carolina Budget and Tax Center, one in seven North Carolinians—1.4 million people—live in poverty. For families in poverty, this equals an annual household income below $24,600 for a family of four. In comparison to other states, North Carolina ranks 14th for the number of our residents living in poverty. As the economy has recovered from the Great Recession, this recovery has not been shared evenly by all. On an income at this level or less, families cannot afford many basic necessities, let alone pay for an attorney when a civil legal issue arises.
The 2017 Justice Gap report released by the Legal Services Corporation indicates that 71% of families experience at least one civil legal problem each year and 86% of these problems receive little to no legal assistance. Combined with the above, this means nearly a million North Carolinians face a civil legal problem each year and most of the problems go unaddressed. As documented in the Justice Index, North Carolina has about one civil legal aid attorney per 20,000 people in poverty, staffing which is plainly insufficient to address all of the civil legal aid issues faced by low-income individuals.
Changing technology impacts IOLTA revenue. We also know that technology has impacted how both the banking industry and legal profession operate, and presumably evolving technology will continue to bring opportunities and change in the future. Some of these changes impact IOLTA and our revenue.
For one, money moves more quickly today than it did in years past. The concept that drove IOLTA from its origin is that pooled funds sit in trust accounts for some period of time before payment or disbursement, generating interest while in the account. If the same amount of money is moving through lawyers’ trust accounts but it is moving more quickly, it follows that the average daily balances in trust accounts would be lower. In the limited analysis NC IOLTA has undertaken, average monthly balances reported by banks holding IOLTA accounts did take a dip for many years, but balances have returned to pre-recession levels in many instances. We will continue to monitor how average balances trend to better understand the current impact on IOLTA revenue.
Scams and fraud, another area of concern, have in some instances resulted in six-figure losses by law firms with scammers becoming increasingly sophisticated. Common trust account scams include, but are not limited to, fake client and check scams, forged trust account checks, and impersonation of a client through compromised wire instructions. In light of growing concerns around this problem, we have heard anecdotally that some firms have adjusted their policies and practices, dictating that transactions that previously would have passed through their trust accounts are now happening wholly outside of trust accounts, handled by other entities like title companies. Considering the risks, if law firms on a broader scale opt to avoid handling funds, IOLTA revenue could take a hit. Conversely though, we have also heard anecdotally that some firms have changed their policies in another direction to slow the process of disbursement, avoiding disbursement of funds on provisional credit. This has the opposite effect on revenues.
Opportunities for diversification ought to be considered. Turning from issues that specifically impact trust account revenue, IOLTA programs nationally are also considering diversification of revenue. For many entities that administer their state’s IOLTA programs, IOLTA revenue represents just one of a host of funding sources. As the American Bar Association lays out in the handbook published annually on issues of interest to IOLTA programs, entities that administer IOLTA are structured in a number of ways, each structure rooted within unique state landscapes with their own set of opportunities for growth.
Nationally, funds from interest on lawyers’ trust accounts represent less than one-third of the dollars that IOLTA funders receive. Other sources of funding include private giving, state legislative funding from filing fees and appropriations, cy pres awards, attorney general settlement funds, escheated funds from attorney trust accounts, other fees typically assessed on lawyers, and investment income. This other revenue makes up 70% of income nationally received by entities that also administer IOLTA dollars. In North Carolina, revenue from IOLTA accounts made up 70% of total revenue of the IOLTA program in 2018 (state legislative funds administered by IOLTA are included to be consistent with the ABA’s national calculation).
In 2015, as the economic recession persisted, a joint committee of the NC Equal Access to Justice Commission and NC IOLTA convened to review available sources of funding that might bolster revenue and available funding for civil legal aid and other administration of justice causes. Using resources and data available from the American Bar Association, the committee looked at every potential source of funds currently being received and awarded by IOLTA programs. The analysis developed from the committee’s work continues to provide guidance as new opportunities are considered.
What’s Next and How You Can Help
The path forward remains uncertain. As the relatively new executive director of this program, who in general tends to be a glass-half-full person, I look forward to IOLTA’s future with optimism. My optimism is, of course, moderated by the changing realities and ever-present need for increased funding. The challenge for NC IOLTA remains growing and faithfully using the resources we do have, financial and otherwise, to promote access to justice for all and provide critically-needed civil legal aid to low-income North Carolinians.
As we continue to sit with some uncertainty about what is next for IOLTA, I would call on all North Carolina lawyers to consider how you can help to support the broader goals of access to justice, in ways big and small. Here are a few suggestions:
• Where you bank matters. While I will stop short of suggesting one bank over another, where you bank matters. Interest rates and service charge policies at the 79 financial institutions that are eligible to offer IOLTA accounts differ greatly. The eligible bank list found on IOLTA’s website specifically highlights the banks we call “Prime Partners” that go above and beyond the IOLTA eligibility requirements in their commitment to improving access to justice in their communities. Prime Partner banks exceed minimal compliance with Rule .1317 by offering higher interest rates and waiving service charges. If IOLTA staff can assist you in navigating the process of opening a new account or moving an account from one bank to another, please give us a call.
• Support cy pres. North Carolina’s cy pres statute directs unpaid residuals in class action litigation equally between the North Carolina State Bar for the provision of civil legal services and the Indigent Person’s Attorney Fund for criminal legal services for indigents. Distribution of settlement funds to the IOLTA program or legal aid providers can also occur through mediation, arbitration, and settlement agreements. The NC Equal Access to Justice Commission produced a cy pres manual to provide information to attorneys and judges who may have the opportunity to direct cy pres funds to legal aid, whether through the IOLTA program or directly to a legal aid provider. The guide can be found on nciolta.org.
• Give. Give in any way that you can. Rule 6.1 calls on every lawyer to provide legal services to those unable to pay with an aspirational commitment of at least 50 hours of pro bono service each year. Rule 6.1 also urges us each to voluntarily contribute financial support to organizations that provide legal services to individuals who are unable to afford a lawyer. NC IOLTA’s grantee partners across the state appreciate your valuable contributions of volunteer time and financial gifts to expand their reach. If you need help connecting with a meaningful project or finding an organization that can make the best use of your talents and treasures, we can help you find that match.
• Inform. As lawyers, it is our job to be ambassadors for the law. The Preamble to the Rules of Professional Conduct calls on all lawyers to seek improvement of the law, access to the legal system, and the administration of justice, and to use our civic influence to do so. We can each work to inform those in our community—government officials, community leaders, neighbors, coworkers, and friends—about the role of lawyers in fixing community problems through the kinds of services offered by civil legal aid providers and other projects that promote the administration of justice. If you are interested in sharing the message of access to justice with a community leader or group in your area, please contact me.
• Reach out. As noted, it took thoughtful, committed leaders many years ago to start IOLTA programs across the country. No doubt, countless changes promoting access to justice over the years have required the same. You may have an idea for how we can do more to increase our available funds or how we can work together to support access to justice. I would love to hear from you.
Mary Irvine is the executive director of NC IOLTA.