Robert E. Feldman
Attention: Comments, Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, D.C. 20429
Subject: Interim Rule on Temporary Liquidity Guarantee Program (TLGP)
Dear Mr. Feldman:
On behalf of the 9th Congressional District of Illinois, which I represent,
I would like to recommend a change in the interim rule announced on October
23, 2008 to govern the recently-created Temporary Liquidity Guarantee
Program (TLGP). I believe a change is needed in order to expand coverage to
include Interest on Lawyer Trust Accounts (IOLTA) as non-interest bearing
transaction accounts for the purposes of the TLGP.
A number of my constituents have contacted me with concerns that IOLTAs
administered through third-party, non-profit programs should be treated as
non-interest bearing transaction accounts under the TLGP. IOLTAs are
interest-bearing client fund accounts that lawyers use to hold funds on
behalf of their clients and are effectively similar to payroll accounts.
IOLTA accounts not only provide ethical protections for lawyers and their
clients when it comes to holding legal funds but also provide revenues to
fund low-income legal aid. It is therefore vital that these accounts are
provided full coverage under the TLGP program.
The IOLTA program exists as a responsible and ethical way of addressing
how to use the interest generated from legal client fund accounts. Lawyers
are mandated in 37 states, including the state of Illinois, to deposit their
clients’ funds in IOLTA accounts. Lawyers place their clients’ funds into a
single account, because it would be too complicated and costly to have
separate accounts for each legal client and would also make it complicated
(and perhaps unethical) to deposit into a lawyer or law firm’s own account.
Traditionally, these accounts were non-interest bearing checking accounts,
but with changes in banking law and the explicit permission of federal
regulators, that funds have been placed into accounts that generate
interest. Under the IOLTA program, the interest generated by the interest in
IOLTA accounts goes towards funding legal education and legal aid for those
who cannot afford it. This is especially important now because of the
increase in foreclosures and evictions in our current economic situation
which created the necessity for TLGP.
Under the new TLGP, IOLTA accounts in excess of the $250,000 guaranteed
limit are eligible for unlimited insurance if they are removed from IOLTA
accounts and are placed into “non-interest bearing deposit transaction
accounts” covered by the TLGP. This creates an unintended dilemma for
lawyers who strive to protect their clients funds in today’s turbulent
economy – they can either continue to hold funds in legally-mandated IOLTA
accounts that are not permitted TLHP protection or place them into
non-interest bearing accounts so as to qualify for the new insurance and
protect their clients’ funds.
The TLGP, as currently configured, has the potential to drain IOLTA
accounts as lawyers place their clients’ funds into insured accounts,
thereby reducing interest received by IOLTAs and threatening the homeless,
low-income, elderly, women and children who rely on legal services. This is
a concern that has not only been voiced by lawyers in my district who seek
to protect their clients’ funds and meet their legal mandate, but also by
those who are concerned about the effect it would have on protecting those
who require legal protection the most.
The FDIC has traditionally had an exception in the past which applied to
IOLTA, in recognition of its unique nature. The current TLGP, however, does
not recognize that IOLTA accounts are materially similar to non-interest
bearing transaction accounts which are identified for increased insurance
under TLGP. Therefore, it is in my recommendation that the FDIC explicitly
recognize IOLTAs as eligible for TLGP or provide an exception so that TLGP
coverage is extended to IOLTAs.
I appreciate your consideration of these comments..