IRETA and IOLTA Accounts

Question:

Our bank wants to offer IRETA's and IOLTA's. We have a state statute that requires that we pay "the highest current passbook savings acount rate (even if the account is a NOW account that would normally pay a lower rate) and must be computed on the average monthly balance in the account or otherwise in accordance with the bank's standard accounting practice." We currently have two Savings products. One is a tiered rate account with a minimum balance requirement. The tiered rate account has the highest savings interest rates, however, there are balance requirements that must be met in order to earn the higher rates. Can IRETA and IOLTA accounts have minimum balance requirements to earn interest and a tiered rate structure if that is in accordance with our bank's standard practices? The law also allows a bank to deduct reasonable service charges. In today's interest rate environment, the interest earned will rarely offset the service charges for even our most reasonably priced NOW Account. Am I correct in thinking that service charges may not invade the funds held in trust for clients, so the bank must absorb a net loss when service charges exceed earnings?

Answer:

I did a Google search on "IRETA" and the only meaningful response I received was a prior BOL post where Mary Beth said she didn't know what the acronym meant. I don't know either, so I cannot help you there.

The restrictions on IOLTA accounts are generally imposed by your state's bar foundation or an equivalent body; i.e. please verify your understanding that it is a state statute. Restrictions as detailed as those you mention do not exist in any of the states where I do seminars that include coverage of IOLTA accounts; i.e. the restrictions may be unique to your state. The only meaningful opinion of the suitability of your accounts and their minimum balance and tiering features would come from the organization that established these rules. The portion of the structure that is usually generic relates to fees - your fees cannot exceed the interest paid on the account.

IOLTA's are generally loss leaders, banks open them only because they want the law firm's deposits. The account structure forced on banks in your state would make them even less desirable. You might very well decide not to offer them.

First published on BankersOnline.com 12/1/03