PORTLAND, ME – Yesterday, President Barack Obama signed into law a provision sponsored by U.S. Senator Angus King (I-Maine) that creates insurance coverage parity between certain bank and credit union accounts. The Credit Union Share Insurance Fund Parity Act, legislation that Senator King introduced in and helped usher through the Senate, creates deposit insurance parity for credit unions by directing the National Credit Union Administration to extend share insurance coverage to trust accounts, such as Interest on Lawyer Trust Accounts (IOLTA) and other similar accounts, opened and managed by credit union members.

“For years credit unions across Maine struggled under disparate treatment afforded to Interest on Lawyer Trust Accounts,” Senator King said. “With this provision now in law, IOLTA accounts at Maine’s credit unions will be treated equally with those as other financial institutions, generating more revenue from interest that will go directly towards assisting low-income Mainers who are seeking help with legal services. And across the nation, those states that have not authorized credit unions as depositories for attorney IOLTA funds should now be able to do so. I’m glad we were able to secure this common sense fix that will make a big difference in the lives of Mainers who need it most.”

“In our very first conversation with Senator King, shortly after he was elected, he identified regulatory relief for credit unions and other smaller, financial institutions for as a top priority for him.  In subsequent meetings and frequent communications, we and the team at the Credit Union National Association (CUNA) have had with he and his staff, regulatory burden remained a topic of conversation and he was clearly committed to doing all that he could on this issue,” said John Murphy, President and CEO of the Maine Credit Union League. “We truly appreciate the hard work, articulation and strong support of Senator King and his staff working tirelessly to overcome obstacles and challenges in getting this legislation passed.”

Lawyers often handle money that belongs to clients, such as settlement checks, fees advanced for services not yet performed, or money to pay various court fees. Sometimes the amount of money that an attorney handles for a single client is quite large or held for a long period of time. In such cases, lawyers deposit the funds into trust accounts, where the funds can earn interest for the client.  It is unethical for attorneys to derive any financial benefit from funds that belong to their clients.

Often, however, the amount of money that a lawyer handles for a single client is quite small or held for only a short period of time, and cannot earn interest for the client in excess of the costs incurred to collect that interest. Lawyers place these deposits into combined, or pooled IOLTAs with other nominal or short-term client funds. Banks in turn forward the interest earned on these accounts to the state IOLTA program, which uses the money to fund a variety of charitable causes – primarily the provision of civil legal services to people near or at the poverty line, including the working poor, low income veterans and persons with disabilities.

Though IOLTAs receive insurance through the FDIC, so that individual client funds in the account are insured, the National Credit Union Share Insurance Fund only covers members’ accounts of the credit union. In the case of an attorney wishing to establish an IOLTA at a credit union, his or her clients must generally also be credit union members or jump through regulatory hoops in order to receive insurance coverage. The provision signed into law yesterday will now require the National Credit Union Administration to provide pass-through share insurance for the deposits or shares of any interest on lawyers trust accounts, which would establish parity in deposit insurance treatment for these accounts and similar accounts insured by the FDIC and make it easier for attorney to use credit unions as their IOLTA depository.

The bill signed by the President yesterday was one of the pillars of the RELIEVE Act introduced earlier this year by Senators King, Mark Warner (D-Va.), Deb Fischer (R-Neb.), and Jon Tester (D-Mont.). Senator King had also introduced the provision as a standalone bill last July.

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