Does Congress give one IOLTA about credit unions?
Former Staten Island Congressman turned lobbyist Vito Fosella gave a great presentation to our Governmental Affairs Conference a couple weeks ago about how, when trying to get things done in the Legislature and Congress, it is important to recognize the value of singles and doubles. Translated into non-sports speak this means that when dealing with Congress or legislatures no one gets everything they want; it’s important to take smaller victories when they are there for the taking while continuing to push for your top priorities.
Why am I waxing philosophical this morning? Because our national trades hit a double the other day when the House of Representatives approved reforms that would allow credit unions to open Interest on Lawyer Trust Accounts. This is not as big a deal as announcing agreement on MBL or secondary capital, but as anyone who has dealt with compliance knows, there isn’t a credit union out there that has not been asked by a local attorney to set up one of these accounts and almost always has to turn them down. Keep in mind that only the House of Representatives has passed this bill, meaning we are a long way from opening these accounts. But even without further action this year, getting the House of Representatives on the record supporting this proposal is a big step in the right direction.
By the way, low-income credit unions can already open these accounts, providing yet another reason why your credit union is nuts not to get a low-income credit union designation is it qualifies. Generally speaking, IOLTA accounts are established by lawyers to hold client payments for expenses related to legal services. As explained in this 2008 opinion letter by NCUA, client funds are insured in IOLTA accounts only to the extent that the clients are members of the credit union where the account has been opened. In other words, simply because an attorney has been a member of your credit union for years doesn’t mean he can open up one of these accounts in your credit union. The bill passed by the House would change all that by clarifying that “IOLTAs and other similar escrow accounts are considered member accounts …, if the attorney administering the IOLTA or the escrow agent administering the escrow account is a member of the insured credit union in which the funds are held.”
For New Yorkers, there is more good news. Section 497 of the Judiciary Law already permits credit unions to accept IOLTA funds so we can avoid the trap New York credit unions find themselves in with municipal deposits, which are authorized on the federal level for credit unions, but State law prohibits municipalities from depositing their funds with us.
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