Nashville, Tenn. – The Tennessee Supreme Court has amended Tennessee Supreme Court Rule 43 and Rule 8, RPC 1.15, the Rules of Professional Conduct, to require attorneys who hold eligible client funds to participate in the Tennessee Bar Foundation’s Interest On Lawyer’s Trust Accounts (IOLTA) program. Additionally, the amendment requires that attorneys maintain their IOLTA accounts at a financial institution that pays the same dividend or interest rate as paid to other non-IOLTA accounts maintained at that institution. Lawyers maintaining pooled trust accounts must comply with the amended rules by January 1, 2010, although the amendments are effective immediately. This fall, attorneys will receive more information from the Tennessee Bar Foundation concerning compliance with the new requirements.
Prior to the establishment of IOLTA in Tennessee, lawyers were not permitted to earn interest on pooled trust accounts. The IOLTA program permits interest to be earned on attorney’s pooled trust checking accounts and paid to the Tennessee Bar Foundation to fund grants to organizations that provide direct civil legal services to the poor, to organizations that work to improve the administration of justice and for law student financial assistance. The IOLTA program does not affect interest generated on single-client trust accounts whose interest is payable to those clients.
Since the IOLTA program was established by the Tennessee Supreme Court in 1983, more than $14.4 million in grants has been awarded to organizations that work to improve the administration of justice in Tennessee. In 2008, more than $1.4 million in IOLTA grants were awarded to 55 law-related organizations in Tennessee.
As a consequence of the economic downturn, the Tennessee IOLTA program has seen a 45 percent decrease in monthly payments from the third quarter of 2007 to the third quarter of 2008.
In proposing the amendment to the Supreme Court rule, the Tennessee Bar Foundation and Tennessee Bar Association worked closely with the Tennessee Bankers Association to reach a compromise that would benefit both attorneys and financial institutions. The amendment adopted by the Supreme Court reflects the final compromise reached by the Tennessee Bar Foundation, Tennessee Bar Association, and Tennessee Bankers Association. The provisions in this amendment ensure that most banks will be able to participate in the IOLTA program.
“Thousands of Tennesseans have benefited from the legal assistance and scholarships that are made possible through IOLTA grants,” said Janice Holder, Chief Justice of the Tennessee Supreme Court. “These amendments will bolster funding for the IOLTA grants and ensure that more Tennesseans have access to essential legal services. We commend the Tennessee Bar Foundation, Tennessee Bar Association, and the Tennessee Bankers Association for working together to reach a compromise that best serves both attorneys and banks.”
Tennessee joins the 38 other states that have adopted mandatory IOLTA programs. According to the American Bar Association IOLTA Clearinghouse, other states that have adopted mandatory IOLTA programs have seen an increase in income of approximately 60 percent. Twenty-three other states have made provisions for interest rate comparability in their IOLTA programs.