By Noreen Marcus, FloridaBulldog.org
A trailblazing, longstanding program that funnels interest from lawyers’ trust accounts to legal aid for low-income Floridians is drawing both positive and negative attention.
In March the Florida Supreme Court approved a Florida Bar request to update the Interest on Trust Accounts (IOTA) program and multiply its impact. The revision took effect in May.
Now the court is reconsidering that change because of pushback from the Florida Bankers Association (FBA).
The justices agreed to take another look at IOTA funding and accept outside comments with a Nov. 1 deadline. The court could rule at any time; it will either reaffirm, tweak or retreat from the March decision.
The bankers’ main problem seems to be that IOTA suddenly became much more lucrative without guaranteeing them a pile of money.
Bankers complain the new formula will reward legal aid providers with “windfall profits.” But in fact, they’re pressing for their own windfall “at the expense of the poor,” attorney Anthony Musto wrote for the Florida Bar Public Interest Law Section that he formerly chaired.
The bankers say the new trust account protocol “raises grave concerns, including the practical and perhaps unintended consequences the Rule will have on FBA members, law firms, and an already stressed banking industry.”
“Simply put … [it] goes too far, too fast,” the bankers wrote in their successful request for a second Supreme Court review. The FBA represents 300 banks.
A ‘PARADE OF HORRIBLES’
Musto derides the bankers’ concerns as an imaginary “parade of horribles” that he expects the court will weigh against the desired goal of expanding legal aid.
“The tremendous impact that this IOTA rule will have on the provision of legal services to the poor is so great, and their parade of horribles is so speculative, that I think the court will keep the rule in place,” he said.
The Bar reported in October that the new formula had already boosted trust account earnings: More than $60 million was accrued in five months, up from $9.5 million to $16.2 million annually for 2018 to 2022.
The Florida Bar Foundation, which runs the IOTA program, distributes the interest money in grants to nonprofit providers of civil – not criminal defense – legal services.
For instance, legal aid lawyers counsel tenants in property disputes, help survivors of domestic violence and advocate for foster children. They try to level a courthouse playing field that almost invariably tilts toward wealthy litigants.
With previous years’ skimpy funding, IOTA grants covered only 8 percent of low-income clients, according to the Bar.
PATRONIS SLAMS BANK ‘TAX’
“More money equates to more services and more help for people in need,” said Donny MacKenzie, executive director of The Florida Bar Foundation.
“I believe it also helps the justice system because unrepresented litigants tend to take longer and demand more of the court’s resources,” he said. “So if a client is represented, there is less of a strain on the court system.
“I think it’s obviously a win-win situation for everyone involved,” MacKenzie said.
It’s not obvious to the FBA and its allies, including Florida’s Chief Financial Officer Jimmy Patronis. Quite the contrary.
Patronis, a Panama City Republican who has indicated he may run for governor in 2026, regulates Florida’s banks. He called the revised IOTA rule “a tax on banks” in his comment urging the Supreme Court to walk it back.
“If the Legislature wished to adopt any tax or fee increase into law,” Patronis wrote, “that increase would need to be enshrined in a standalone bill, and both chambers would need to approve that bill by an extraordinary two-thirds vote.”
To which his friend and supporter Jody Hudgins responded, “with all due respect to Mr. Patronis, he’s misinformed.” A retired banker, Hudgins convinced his colleagues on the Florida Bar Board of Governors to support the IOTA update before his term ended in June.
WHO PAYS HIGHER RATE?
“If it’s a tax, it’s a voluntary tax you don’t have to pay if you’re not in the program,” said Hudgins, a faculty member at Louisiana State University’s Graduate School of Banking.
The new IOTA rule directs lawyers to keep client money in higher-yield trust accounts. So banks that want this business must offer their lawyer customers an upgraded product.
The required interest payout is tied to the fluctuating Wall Street Journal prime rate; banks earn interest rates that correspond to changeable Federal Reserve decrees.
The FBA and Hudgins are debating whether, under the new rule, IOTA accounts earn more interest for the banks than they must pay out. The bankers say no for many complicated reasons. Hudgins says yes because the pay-outs will always be lower than Federal Reserve rates by at least 3 percent.
“It’s a reasonable method to ensure trust accounts get a market rate of business,” Hudgins said. Banks that leave the IOTA program forgo a competitive advantage and “lose money because plenty of banks want to participate.”
ARE BANKS ON BOARD?
“The number of trust accounts is not going to be impacted,” Musto said. “Even if it’s assumed there’s some impact on banks offering IOTA accounts, it will be that of accounts going from one bank to another.
“That is part of the normal flow of a free-market system,” he said. “The banks that lose accounts can adapt or not. The overall amount of business for the industry will not be impacted.”
So far, at least, the banking industry is falling in line with IOTA 2.0.
Just over 160 banks participate, 10 more than took part when the change was approved in March, MacKenzie of The Florida Bar Foundation said.
Ten banks hold 70 percent of the $9 billion to $10 billion total trust accounts, he said. “They instantly came into compliance and revenues dramatically increased.”
“When we track what we think we should be collecting under the new rule, as opposed to what we’re actually collecting, it’s in the 90-to-95 percent range,” MacKenzie said.
LEGAL AID REVOLUTION
Florida was the first state to adopt IOTA. Up to that point in 1981, banks hadn’t been allowed to pay interest on the trust accounts that lawyers must maintain for their clients.
There’s nothing voluntary about these trust accounts – any lawyer who doesn’t have one and, instead, commingles client funds in their own business or personal accounts, is asking for a Bar ethics probe.
Florida’s embrace of IOTA started a national revolution in legal aid funding. The George Washington and Alexander Hamilton stand-ins were the late Florida Supreme Court Chief Justice Arthur England and civil rights attorney Randall Berg Jr., co-founder and leader of the nonprofit Florida Justice Institute until his death in 2019. England died in 2013.
England, who got the idea for IOTA from a Canadian program, steered the innovative concept through the Supreme Court.
Berg became the ambassador at large for legal aid financing. He was instrumental in fending off two IOLTA challenges at the U.S. Supreme Court (outside Florida the name is Interest on Lawyer Trust Accounts).
Today there’s a program in every state, the District of Columbia and the U.S. Virgin Islands. Overall they’ve generated more than $4 billion.