IOTA rule amendment debated

first_imgIOTA rule amendment debated Cooke said the change also would require any institution that wants to handle IOTA accounts to offer the same market rate of interest or dividends on products available to non-IOTA depositors with comparable balances. Authorized investments would include FDIC insured accounts, daily bank repurchase agreements (REPOS) or appropriate safe-guarded investment products such as government money market funds. Currently, IOTA funds can only be held in federally insured checking accounts or REPOS. A. Hamilton Cooke “We simply want to have the IOTA accounts treated with the same parity with non-IOTA accounts,” Cooke said.Under the current program, Cooke said, total IOTA revenue will amount to about $11 million this year, and has been steadily falling since the mid-1990s as interest rates have waned and bank service charges have risen. Cooke said at its peak, IOTA was generating about $19 million a year for legal aid, administration of justice, and law student assistance programs.Cooke said the Foundation sees the rule amendment as the best way to combat a “whipsawed combination” of low interest rates and high services changes that have forced the Foundation to reduce grants by 15 percent over the past two years.Bar President-elect Terry Russell told the court the Bar Board of Governors also supports the rule change. He said at any one time about $1.5 billion is being held in Florida IOTA accounts, but that money is only generating annual revenues of about $10 to $11 million for the Foundation. That’s due in large part to market forces not coming into play to provide competitive investment return on the accounts, he said.“I think the law firms that create these accounts simply have no motivation to see to it that the returns on these accounts is similar to what it would be in another environment,” Russell said. “This has sort of left the financial institutions free to deal with these IOTA accounts in a discriminatory way.”Russell said the rule change “is a good, fair, equitable solution” to bring the market competition into play, which should boost the return on IOTA investments.Cooke also told the court that the Foundation has worked out language in the proposed rule that is acceptable to the Florida Bankers Association.“I absolutely have no problem with a rule which specifically says you have got to treat [IOTA accounts] fairly,” said Tom Cardwell, who represented the Florida Bankers Association at oral argument. “We are not troubled by that rule at all.”Justice Peggy Quince asked why credit unions, which were included in the Foundation’s original rule change petition to become eligible to hold IOTA accounts, was removed from a later filing.Cooke said it was learned that there is not insurance available on credit union accounts, except with respect to members of the credit union.Since credit union insurance only applies to members of the credit union, a trust account that consists of many accounts holding money belonging to people who are not members of that particular credit union, would not be covered by the insurance, Cooke said.“We felt that with that not being the posture, that we ought to take credit unions out at this point,” Cooke said. IOTA rule amendment debated Mark D. Killian Managing Editor Opening the IOTA program to financial institutions other than banks and requiring those holding the trust accounts to pay interest rates or dividends commensurate with those offered to their non-IOTA depositors will go a long way toward providing more legal assistance to Floridians whose legal needs would otherwise go unmet.That’s the message Florida Bar Foundation President A. Hamilton Cooke brought to the Supreme Court June 4 during oral arguments on the Foundation’s petition to amend the IOTA rule to allow financial services companies — such as Morgan Stanley or Merrill Lynch — to hold IOTA accounts. Justice Pariente Justice Barbara Pariente asked if money market accounts were safe places to invest IOTA account money. “We are dealing with large money market accounts consisting only of government securities and minimum [total assets] of $250-million, and we believe that is a safe investment,” Cooke said. “If this court permits this, I’m sure the Foundation will continue to explore options of trying to ensure if there is any risk we can meet that. We feel this is a very minimal risk.” June 15, 2001 Managing Editor Regular News Pariente also wanted to know the criteria for determining if banks are treating IOTA accounts fairly.Cooke said while each bank is going to have its own individual criteria, the Foundation will look to make sure that criteria is being applied evenly.“We are looking at what each bank offers, and if you offer this as a standard vehicle for non-IOTA accounts, we are basically saying with the rule for that bank to be eligible for IOTA accounts it must offer that same product to the IOTA account,” Cooke said.“We are going to be monitoring it in every way we can. If we feel like banks are not treating IOTA accounts fairly, then we are going to try to bring that to their attention,” Cooke said. “If there is no relief at all, we would be going to the firm and saying that bank is not an eligible institution for IOTA funds.”Cardwell noted that in setting rates banks often take into consideration other business relationships that bank has with the particular account holder, such as size of the account, loan relationships, and business referral agreements. He said there are often legitimate reasons why some accounts get higher interest rates than others, but said the banks will be able to justify those rates to the Foundation.Under the plan, the Foundation, not the lawyer, will be responsible for monitoring usage of banks’ and financial services companies’ existing products available to non-IOTA depositors in order to determine compliance with the IOTA rule.The proposal calls for no action to be required of law firms unless and until an attorney’s or law firm’s bank becomes ineligible to hold IOTA funds because of its unwillingness to offer products in compliance with the rule.In that instance, the Foundation would advise the attorney or law firm that their financial institution had become ineligible to hold IOTA funds.However, in the event a bank is in compliance with the comparable interest rate or dividend provisions of the rule, but is unwilling to remit interest directly to the Foundation, in order to accommodate law firms, the firm would be permitted to maintain its account where it was situated and remit directly to the Foundation rather than be forced to change institutions.As part of the plan, the Foundation also said it will independently work with banks and financial services companies to develop appropriate products which are in compliance with the IOTA rule.That would include providing them computer and technical support needed to remit IOTA earnings to the Foundation and conduct the required reporting.last_img

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