As interest rates remain low, a program that relies on interest-bearing accounts to fund D.C. legal aid providers is struggling to raise money.
The Interest on Lawyers Trust Accounts program, or IOLTA — which pools the interest generated from client funds being held by D.C. lawyers and distributes the money to civil legal services providers in the District — saw revenue fall 24 percent in the fiscal year ending June 2014 compared to the previous year, from $708,794 to $539,898.
That figure is a significant drop from the $2.4 million the program generated in 2008, before banks slashed interest rates of up to 4 percent on deposits to no more than 1 percent. Now, most banks offer about 0.22 percent, in accordance with the federal funds rate of zero to 0.25 percent.
Even though the number of IOLTA accounts has grown every year for the past several years — from 2,070 in 2010 to 2,797 as of March 2014 — the revenue generated from those accounts has hovered around $500,000 to $600,000 each year, with the exception of 2013, when the program benefited from two unusually large settlements that were paid out and no longer generate interest.
Lawyers often keep client funds in trust accounts, such as when they hold a class action settlement to be paid out over time. If the amount is large or held for a long enough period, it generates interest for the client. But when the amounts are “nominal” or held for too short a time to generate interest, lawyers can place the funds in IOLTA accounts. D.C. IOLTA funds go to 501(c)(3) nonprofits in the District that serve D.C. residents with legal services, including help gaining access to shelter, food, safety and unemployment benefits.
D.C. IOLTA funds are distributed to legal aid providers by the D.C. Bar Foundation, the charitable arm of the D.C. Bar. IOLTA revenue is a critical part of the foundation’s efforts to fund and support civil legal services in the District, said Kirra Jarratt, the foundation’s executive director.
“While our fundraising efforts get stronger, we simply cannot replace the millions of dollars in decreased revenue that we have experienced over the past five years,” Jarratt said. “We want to fund more providers who are helping people in our community with the most basic of needs, like housing and unemployment benefits.”
Nine of the 34 banks that participate in the D.C. IOLTA program have agreed to pay an interest rate of at least 1 percent, and those banks are mostly small regional institutions. Jarratt said she would like to see one of the larger participating banks make a similar commitment.
The IOLTA program is expecting a major revenue boost in the near future, thanks to a recent settlement between the Justice Department and Bank of America that will result in at least $200,000 going to the D.C. program. The settlement, announced in August, resolved claims that the bank and its subsidiaries sold billions of dollars of mortgage-backed securities without fully disclosing to investors the quality of the loans. The agreement requires the bank to allocate $7 billion to consumer relief efforts, of which at least $30 million will go to IOLTA programs across all 50 states, D.C. and the U.S. Virgin Islands. Every state runs its own IOLTA program, and each will receive $200,000, with the remainder of the $30 million to be distributed state by state, based on the percentage of people living in poverty.
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