News and Information
January 26, 2012

Legal Aid Appeal: Consider IOLTA

Additional Info

request to establish IOLTA account form (download PDF file)


by Dawn Chase

Today, Virginians with incomes in the poverty range — many of them newly poor — are standing in line for help with foreclosures, debt relief, public benefits, and other essential legal matters.

More than one million Virginians — one in eight— meet the financial criteria for legal aid. Last year almost 40,000 cases were closed, benefitting 87,000 people.

The system is on triage. Poverty lawyers and support staff are hard-pressed to meet the demand, not only because of the increased need, but also because legal aid’s funding has been cut by almost $6 million since 2008. Intensified fundraising helped restore only a small portion of the lost funds.

Legal Aid program staffs were reduced in 2011 through attrition and layoffs. Health and retirement benefits were cut. Training and other administrative costs have been cut as well.  More layoffs are planned for 2012, and services will be further reduced. The lines will get longer and the number of people in need who are turned away without any assistance or just brief advice will grow.

Mark D. Braley, executive director of the Legal Services Corporation of Virginia (LSCV), is hoping that an adjustment to the Interest on Lawyers’ Trust Accounts (IOLTA) program will partially bridge the gap between more need and less funding.

Delegate G.M. “Manoli” Loupassi is sponsoring legislation that could strengthen Virginia’s IOLTA program by repealing a statute that prohibits the Supreme Court from adopting a rule that requires lawyers to participate in IOLTA, depending on the type of client trust accounts they maintain.  With this change, Virginia would join forty-four other U.S. jurisdictions with mandatory IOLTA programs. At this time, Virginia lawyers can choose between IOLTA and a non-interest-bearing client trust account that allows banks to use the deposited money for free.

Pending the General Assembly’s decision on the legislation, Braley is asking lawyers who do not already participate to exercise their IOLTA option and help legal aid meet the growing unmet need for legal assistance.  Lawyers can do this by converting their non-interest-bearing trust account to interest-bearing IOLTA accounts. The interest earned on IOLTA is paid to LSCV for distribution to legal aid programs throughout the state.

Converting to an IOLTA account is very easy.  Lawyers fill out a one-page form (download PDF file), check the appropriate box, and submit it to their banks. The conversion does not require closing existing non-interest bearing trust accounts, obtaining new checks, or other costs.  In most cases, the same account number will be retained.  Most banks should be able to convert the accounts quickly. Any questions by the bank or lawyer can be addressed by contacting Carolyn Lawrence at (804) 782-9438 or Lawrence can also quickly email the form to lawyers and banks. 

Currently, the Virginia IOLTA program has 5,200 participating accounts, which are drawing 0.1 percent interest in the current market, for a total payout to legal aid of about $680,000 last year. Virginia has more than 29,000 lawyers in active practice.

Because the number of non-interest-bearing trust accounts is not known, Braley can only estimate that making the program mandatory would add up to 15,000 accounts to the program. The biggest IOLTA accounts house money from such transactions as real estate closings and insurance settlements, where large sums sit in trust for a few days pending disbursements. Other states that made IOLTA mandatory at least doubled their IOLTA revenue. Some quadrupled it.

At current interest rates, the contribution to legal aid is helpful but only a portion of what is needed to sustain services. When interest rates increase, however, IOLTA can re-take its historical place as the backbone of legal aid funding.

In 2007, Virginia’s small IOLTA fund earned $4.6 million. The recession hit, interest plunged, and housing sales dwindled, bringing IOLTA income to its current level of $680,000. In response, LSCV spent down its small reserve, then reduced its program funding by 18 percent in fiscal 2011. Programs began cutting staff and other budget items.  Many cases that formerly would have qualified for fuller representation are now accepted as advice-only, where callers are given information on how to represent themselves.

The $6 million in funding cuts included the $4 million in lost IOLTA revenues, reductions in support from local governments and nonprofit charities such as United Way, and Congress’s decision in fall 2011 to reduce its allotment to state legal aid programs by 15 percent, on top of a 4 percent reduction earlier last year. The federal cut totaled about $1.2 million and took effect January 1, 2012.  On top of these significant cuts, LSCV’s filing fee appropriation has fallen by almost $500,000 since 2009 because of fewer case filings.

In addition to requesting the IOLTA legislation, Braley has asked for a $4 increase in civil filing fees to benefit legal aid. Delegate David B. Albo and Senator Thomas K. Norment Jr. are sponsoring that proposal as budget amendments.

Should the legislation fail to pass, legal aid will have to lay off more staff. Twenty attorneys and ten support staff are scheduled to be let go from the nine direct-service programs that operate thirty-eight offices throughout the state.

“That will be devastating to a system that only has about 125 case-handling attorneys,” Braley said.

The bar will see some of the impact: more pro se litigants in line for help at clerks’ offices, and hearings slowed as people with no legal training try to handle their own cases. Hiring a lawyer is not an option. The income cap for legal aid help is $13,613 for an individual and $27,938 for a family of four.

Much of the impact of not meeting critical legal needs is hidden: homelessness from more evictions; hunger and other deprivation from inability to obtain spousal and child support; and poor health from failure to qualify for public benefits, for example.

Braley says that participating in IOLTA is the easiest way to help legal aid without burdening the taxpayer, the lawyer, or the bank.

 “The whole point of the IOLTA programs created around the country over thirty years ago was to make good use of large amounts of money lying fallow in non-interest-bearing accounts by pooling those funds so that they could earn interest for legal aid.  That’s why the IRS approved it to begin with.  And, until we entered the worst recession since the Great Depression, IOLTA was the second-largest funding source nationally for legal aid programs.”

As Braley describes the need to nonlawyers around the state, he focuses on a civics lesson that lawyers know well.

"The foundation of any great democracy is the justice you can achieve in its legal system, and whether the playing field is level for everybody, regardless of your economic status,” he said. “Everybody should have access to the same legal system and the same ability to represent and protect their rights."


Updated: Jan 27, 2012