Florida Bankers Association continues effort to revisit IOTA rule change
In its effort to convince the Supreme Court to reconsider a new Bar rule requiring lawyers keep their trust accounts in institutions that tie interest rates for IOTA accounts to specific indexed rate points, the Florida Bankers Association (FBA) reiterated its argument that it was “blindsided” by the amendment and asked the court to at least delay its implementation.
“At best, [the court] should send the 2023 Amendment back to The Bar and appoint a task force to propose a rule that does not require compliance within the next three weeks that could destabilize Florida Banks and disrupt the system in epic proportions,” the FBA said in a May 1 motion. “At worst, the Court should extend the effective date for six months, at a minimum, to allow both banks and law firms to orderly comply with the requirements, or in the case of Banks, opt out altogether.”
The Florida Bankers Association was replying to the Bar’s response to the FBA original motion for reconsideration in Case No. 2022-1292 that amended Rule 5-1.1.
The Bar contends the amendments repair the market in which interest rates for IOTA trust accounts are established to make that market closer to the theoretical model of the free market and the FBA has little or no standing to protest the changes and their arguments do not warrant delaying the implementation of the amendments.
Specifically, the new language provides: “When the Wall Street Journal Prime Rate (‘indexed rate’) is between 325 and 499 basis points (3.25% and 4.99%), the yield must be no less than 300 basis points (3.00%) below the indexed rate in effect on the first business day of each month. When the indexed rate is 500 basis points (5.00%) or above, the yield must be no less than 40% of the indexed rate in effect on the first business day of each month.”
The rule is set to take effect May 15.
In its latest filing, the FBA acknowledges the Bar provided notice according to its own rules, but that was a “a far cry from giving adequate and meaningful notice to banks.”
The FBA asserts that the state’s setting a minimum interest rate may infringe on the banks power to hold those types of accounts all together.
“The issue is not whether this particular rate of 2% is so high that it undermines the use of such accounts, or even if it substantially impacts national banks’ competitiveness,” the FBA said. “The power to set minimum rates is the power to control, and the power to control is the power to destroy.”
The FBA says the projected decrease in the number of banks participating in the IOTA program is not hyperbole.
“The 2023 IOTA Amendment puts banks in the unreasonable position of having to choose whether to forego their own profits (and likely some long-standing charitable commitments of their own) or withdraw from the IOTA program instead,” the FBA said. “This does not need to happen. It is possible to increase funding for the [Florida Bar] Foundation . . . in a manner that would still give lawyers increased choices (and the ability to actually negotiate) because more banks would choose to continue participating in the IOTA program.”
The FBA said the amendment places lawyers at a significant disadvantage and could lead many Florida law firms with little choice but to choose from just a few banks that will “make up” for the increased interest by charging extremely high transaction costs.
“Logic (and the free market) dictates that leaving lawyers with fewer and more expensive banking choices only exacerbates lawyers’ inability to negotiate,” the FBA said. “Such a result will cause panic, instability, and uncertainty for every single law firm in the state of Florida.”
The Bar contends the rule change does not “regulate” banks or give the court the power to sanction banks. Instead, the Bar says, the changes are designed to regulate lawyers in the process of opening and maintaining IOTA trust accounts.
“The Bar is seeking to achieve its longstanding goal of obtaining the highest interest rates available in the free market by amending the rule to create a structure that can be successful,” the Bar argues.
The Bar maintains that this minimum rate is within the reasonable range of the fair market price to charge banks to receive the billions of dollars of capital in lawyers’ IOTA trust accounts.
“This rule does not compel any bank to offer this interest rate,” the Bar said. “But by setting this objective standard, every lawyer has a goal that the Bar maintains is achievable. These lawyers will now negotiate more aggressively to achieve what the Bar maintains is the fair market price.”
