The Interest on Lawyers' Trust Accounts (IOLTA) program in Washington State will be reviewed by the U.S. Supreme Court next fall, according to law.com. For those of you who don't know what an IOLTA program is, an explanation. Attorneys are often required to hold on to money that belongs to their clients. Sometimes the amount is large enough so that it can earn interest without the interest being swallowed up by bank fees. That money is held in an account where interest accrues, and can be turned over to the client. Sometimes the amount is fairly small, or will be held for a very short period of time. A page on the Lawyers' Fund for Client Protection of the Bar of Delaware web site tells us this about those funds:
When a client gives you a "nominal" amount of money, or you will be holding a client’s money for a "short period of time," Rule 1.15(g) states that these funds shall be maintained in a "pooled interest-bearing depository account" which is set up so that the interest the account earns will be paid to the IOLTA program administered by the Delaware Bar Foundation.(The rest of the page, Client Trust Accounting for Delaware Attorneys is a great source of information on handling client's money.) The Washington class action is claiming that the interest earned through the IOLTA program still belongs to the clients, and that the use of that money by the government is an unconstitutional taking of property "without just compensation" under the fifth amendment. The law.com article also states that. "According to the American Bar Association, IOLTA programs represent the second-largest funding source of civil legal services in this country."
The idea behind the Delaware Bar Foundation is that attorneys often hold amounts of money for clients that are so small or will be held for such short periods of time that the interest the money could earn for the client if it were held in a separate interest-bearing account for that client would be less than the cost involved in earning or accounting for the interest. However, when these amounts of money are held in a pooled client trust bank account, they collectively can generate substantial interest. The Delaware Bar requires that this aggregate interest, which would otherwise benefit only the bank, is used to ensure that poor Delawarians have access to legal services.