Proposal could remove bar to mandatory IOLTA

Once again, advocates for legal aid offices are hoping that a Virginia ban on mandatory use of interest on lawyers’ trust accounts might be rescinded.

Legislation to remove the ban was introduced Jan. 7 at the General Assembly. If approved, the measure would repeal a statute that ties the hands of the Supreme Court on mandatory IOLTA.

Virginia is one of only five states that do not require lawyers to have trust account interest sent to legal aid programs. Ethics rules forbid lawyers from keeping the interest for themselves – if legal aid doesn’t get the interest, banks keep it.

The ban on mandatory IOLTA has been in place since 1995. Banks had opposed any change as repeals were proposed over the years, but that opposition has disappeared this year.

Statutory ban

Del. Rip Sullivan, D-Arlington, introduced House Bill 1853 which would repeal the statute – Va. Code § 54.1-3915.1 – that prohibits the Supreme Court from adopting a disciplinary rule requiring that lawyers deposit client funds in an interest-bearing account.

An existing statute – § 54.1-3916 – requires that interest on client funds in interest-bearing accounts be paid to the Legal Services Corporation of Virginia.

Passage of Sullivan’s bill would not enact required IOLTA, cautioned LSCV executive director Mark Braley. If the prohibition is removed, LSCV would have to petition the Supreme Court, which would then refer the issue to the Virginia State Bar for comment and consideration by the Bar Council.

“I’m taking this one step at a time,” Braley said.

Bankers unopposed

The first step may be easier this time around. Bankers have withdrawn their opposition. The Virginia Bankers Association in the past has objected to regulation of banks as a collateral effect of regulation of lawyers.

But Bruce Whitehurst, Virginia Bankers president and CEO, said Braley has established a good relationship with both bankers and lawyers over the years, persuading more banks to offer interest-bearing accounts for attorneys and more lawyers to participate in IOLTA.

“We’ve basically just taken ourselves out of it. It’s up to the lawyers, now,” Whitehurst said Jan. 14.

Braley said his office now receives about $800,000 a year from interest on lawyers’ trust accounts. That amount could double with mandatory IOLTA – he said that’s been the experience of other states that converted from opt-out to mandatory IOLTA.

While that interest revenue pales in comparison to the portion of the LSCV budget that comes from the state budget, the state funding stream is on the decline, Braley said. The pandemic has reduced the number of actions filed in Virginia courts so there are fewer $9 fees collected for legal aid.

Virginia lawyers were split in 1993 as the bar considered the issue, with many solo practitioners opposed. Participation is much higher now, Braley said.

With bankers’ unopposed, Sullivan said he’s hopeful for success on repealing the ban.

“I am expecting a positive reception in committees and in the chambers,” he said.

Sullivan observed that mandatory IOLTA would help direct “non-general fund money” to legal services. “I think it will do a great deal of good.”

Virginia Bar Association president Alison McKee said the VBA is supportive.

“It is consistent with our mission to improve access to justice in the commonwealth,” McKee said.