Eligible Financial Institutions

Under their ethics rules, Illinois lawyers may maintain IOLTA accounts only at financial institutions that meet the criteria to be eligible under Illinois Rule of Professional Conduct 1.15B:

  • Financial institutions that want to be eligible to hold any client trust accounts must agree to report trust account overdrafts to the Attorney Registration & Disciplinary Commission (ARDC). This ensures that the ARDC, which regulates Illinois lawyers, is aware of mishandling of trust accounts that may indicate other problems with a lawyer’s conduct. To meet the requirement, financial institutions must submit a Trust Account Overdraft Notification agreement to the ARDC. This requirement is contained in Rule 1.15B(e). More information is available on the ARDC’s web site.
  • Financial institutions that want to be eligible to hold IOLTA deposits must offer IOLTA accounts that meet the interest rate comparability requirements of Rule 1.15B(c). These requirements and the procedure for certifying compliance with them are detailed below.

Comparable Rate Requirement

Rule of Professional Conduct 1.15B states that attorneys and law firms may hold IOLTA accounts only at financial institutions that meet the following criteria:

  • Comparable rates are paid on IOLTA and non-IOLTA accounts with similar balances and requirements (see Rule 1.15B(c)
  • The financial institution can assess only allowable reasonable fees on IOLTA accounts. (See Rule 1.15B(c)(iii) and Rule 1.15C(i))
  • The financial institution cannot engage in “negative netting.” No fees charged in excess of the earnings accrued on an individual account may be deducted from the earnings accrued on other IOLTA accounts. (See Rule 1.15B(c)(iii))

Eligible financial institutions may use a range of options to meet the requirement to meet the Comparable Rate Requirement including:

  • Paying preferred interest rates on checking accounts
  • Using alternative products for higher balance IOLTA accounts
  • Paying higher-yield rates in lieu of moving IOLTA accounts into alternative products
  • Paying the Safe Harbor Rate (a rate indexed to 70% of the current Federal Funds Target Rate or a rate of 1.0% whichever is higher)

LTF requires financial institutions to periodically certify compliance (and provide underlying documentation) with the Comparable Rate Requirement. Many Illinois banks minimize the burdens associated with periodic certification by agreeing to pay the Safe Harbor Rate.

More information about the meeting the Comparable Rate Requirement is available in Section 2 of the IOLTA Operations Manual: Guidance for Illinois Financial Institutions. If you have questions about eligible financial institution status and comparable rates, contact LTF Director of Finance and Operations Terri Smith-Ashford via email or at 312-938-3001.

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