Notice about FDIC insurance change for IOLTA and noninterest accounts

From State Bar of Michigan’s
Member Advisory

Editor’s Note: The State Bar of Michigan issued the following warning in late December, and since then the Section 343 provision was indeed allowed to expire. Though the fiscal cliff legislation was packed with extensions   in other financial (and non-financial) areas, it did not deal with this question. A source in the New York financial sector thought that there might be some movement to address the situation through the administrative process, but that also did not come to pass.

For the past two years, IOLTA accounts and non-interest-bearing accounts enjoyed unlimited FDIC insurance coverage pursuant to Section 343 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. That provision has a sunset date of December 31, 2012.

As of January 1, 2013, FDIC insurance available to IOLTA accounts will be $250,000 per owner of the funds (client), per financial institution, assuming that the account is properly designated as a client trust account and proper accounting of each client's funds is maintained.

This is the same coverage client funds had before the temporary provision permitting unlimited coverage. The $250,000 amount is not the cap on the total in the pooled IOLTA account; that cap applies to each individual client's funds in that institution (see item 2 at the FDIC link below). Client trust accounts, including IOLTA accounts, are interest-bearing accounts, but it is also worth noting that non-interest-bearing bank accounts will also have this same $250,000 coverage limit.

Further information on FDIC insurance coverage for IOLTA and other accounts as of January 1, 2013, is at http://www.fdic.gov/deposit/deposits/unlimited/expiration.html. That site states: “Beginning January 1, 2013, noninterest-bearing transaction accounts will no longer be insured separately from depositors’ other accounts at the same IDI.  Instead, noninterest-bearing transaction accounts will be added to any of a depositor’s other accounts in the applicable ownership category, and the aggregate balance insured up to at least the Standard Maximum Deposit Insurance Amount (SMDIA) of $250,000, per depositor, at each separately chartered IDI. Depositors should be made aware that Section 335 of the Dodd-Frank Act permanently increases the SMDIA to $250,000.”
The State Bar of Michigan’s website is www.michbar.org.