Michigan Credit Unions Now Eligible to Hold IOLTA Accounts
Michigan credit unions can now offer Interest on Lawyers’ Trust Accounts (IOLTA) after the Michigan Supreme Court amended IOLTA rules after a law assuring federal insurance for IOLTA accounts at credit unions was signed by President Barack Obama earlier this year.
Before this change in the federal statute, Michigan did not recognize credit unions as approved providers of IOLTA accounts. Following the Michigan Supreme Court’s amendment to permit IOLTA accounts at credit unions, MCUL & Affiliates worked with the Michigan State Bar Foundation and the State Bar of Michigan on tools that can help credit unions that wish to establish IOLTA accounts. A letter enclosing these tools and signed by the CEOs of all three organizations was mailed to all MCUL members this week. These tools can also be accessed at www.msbf.org/iolta.
IOLTA is a method of raising money for charitable purposes, primarily the provision of civil legal services to indigent persons, through the use of interest earned on certain lawyer trust accounts.
In cases where lawyers hold small amounts in trust or funds that will be held for a short time, it is impractical for the attorney to establish a separate account for each client since the cost of establishing and administering the account could exceed any interest generated, and result in a net loss for the client. Lawyers hold these funds in pooled, interest-bearing accounts and the net interest earned on these accounts is paid to the state IOLTA program for charitable purposes.
On Feb. 4, The Michigan Supreme Court adopted the amendment to MRPC 1.15 adding credit unions authorized to do business in Michigan to the definition of financial institutions eligible to hold IOLTA accounts. The Michigan State Bar Foundation’s announcement of the amendment can be found on its homepage. This action followed the enactment of the Credit Union Share Insurance Fund Parity Act, which provides for insurance for IOLTA deposits at credit unions.
Sara Hendrickson, vice president of retail operations for Lake Michigan CU, said practicing attorneys have asked to open IOLTA accounts at LMCU over the years.
“As a full-service credit union it makes good sense that we are able to provide a full suite of products to our law firm members,” Hendrickson said. “In addition this type of account, which requires a market interest rate and very minimum fees, is in line with the credit union’s philosophy of good rates and low fees.”
But Hendrickson said offering IOLTA accounts can be an important part of the credit union’s mission.
“It is bigger than just being able to offer another product,” she said. “Paying a high-yield rate on these deposits is a great source of funding to several innovative programs that have a positive impact on the distribution of civil legal services to the disadvantaged in our communities. This directly aligns with the credit union philosophy and commitment to being strong community partners by creating a positive and lasting impact.”
Beth Spadafore, business development officer at Community Choice CU, said the change in law will facilitate the process of setting up these accounts.
“Previously, the credit unions would require both the attorney and the client to sign on the account,” Spadafore said. “This is extremely prohibitive for the attorneys, as they may have 50 clients that they are servicing, and these may change several times during the course of a year or so.Go to main navigation