Senate panel moves bill to change interest rates paid on IOTA accounts
Sen. Erin Grall
A Senate panel on Wednesday approved a measure that would give banks that participate in the IOTA program more flexibility to pay lower interest rates on lawyer trust accounts.
The Senate Judiciary Committee voted 7-2 to approve SB 498 by Republican Sen. Erin Grall, a Vero Beach attorney.
“This bill tries to bring balance and sustainability to the IOTA program by creating two interest rate alternatives for savings institutions that participate,” said Sen. Jay Trumbull, R-Panama City.
Trumbull, a nonlawyer committee member, presented the bill in Grall’s absence.
At stake, supporters insist, is the “sustainability” of a program that generated $279 million in legal aid funding in FY 2023-24 under a Bar rule amendment the Supreme Court adopted in March 2023.
Opponents argued that any savings the banks accrue would come at the expense of Florida’s working poor — seniors, veterans, and domestic violence victims who can’t afford legal services.
Bankers argued that the Supreme Court exceeded its authority when it approved the amendment, which, among other things, requires participating institutions to tie minimum interest rates for IOTA accounts to the Wall Street Journal Prime Rate.
“To tell the bank what rate they have to charge we believe is a bank regulator’s role, and, we believe, unconstitutional,” said Florida Bankers Association Executive Vice President Anthony DiMarco.
SB 498 would give bankers the option of charging either the highest rate it makes available to comparable non-IOTA accounts — or 25% of the federal funds target rate, or 0.25%, whichever is higher, net of fees.
Dennis B. Murphy, Jr., president and CEO of Gulfside Bank in Sarasota, said the rule forces banks to pay a premium interest rate on trust accounts that cost more to manage because they typically generate high volumes of transactions.
“That word sustainable is critical,” he said. “We are fully in support of legal aid, but it’s got to be done in a way that makes sense.”
Pressed by a committee member, a veteran banking lobbyist estimated the bill would likely reduce legal aid funding to about $15 million, closer to what the IOTA program generated before the Supreme Court adopted the rule change.
In 2022, amendment sponsors argued the revision was badly needed to counter plunging interest rates that since the 2009 financial crisis slowed legal aid funding to a trickle. That year, IOTA generated about $7.75 million for legal aid, according to a Senate analysis.
Opponents insisted that the Supreme Court stayed well within its lane of regulating the legal profession. The rule requires lawyers to deposit client funds in IOTA accounts, but bank participation is voluntary.
Jeffrey D. Harvey
“To be clear, the IOTA program is not banking regulation, it is lawyer regulation,” said Jeff Harvey, CEO of Community Legal Services of Central Florida, Inc., the largest single grant recipient of IOTA funds.
Harvey noted that since the rule change, the number of banks participating in the IOTA program rose approximately 10%, to 170. Combined, participating banks hold about $10 billion in IOTA deposits, according to a Senate staff analysis.
The latest figures available from FFLA (Funding Florida Legal Aid), which administers the IOTA program for the court, shows that between 2022 and 2023, as the impact of the rule change was just beginning to be felt, the number of clients served by qualified legal aid organizations jumped from 114,002 to 123,729.
However, the same figures show that during the same time period, legal aid organizations were forced to turn away 38,887 clients, down slightly from 40,847 the previous year.
“I can assure you there is a great need for the work that we do,” Harvey said. “There will always be more vulnerable Floridians, seniors, and veterans, than we can help.”
Leslie Powell-Boudreaux, executive director of Legal Services of North Florida, reminded the panel that Florida is the only state that does not provide a recurring source of taxpayer dollars for legal aid.
“A strong and fair IOTA program makes that possible,” she said.
Communities benefit from the jobs the IOTA program creates and the ancillary spending on support services, opponents noted.
A few committee members said they were strong supporters of legal aid, but they were troubled by the size of the increase in funding that resulted from the rule change.
Last year, the Supreme Court approved an FFLA proposal to set aside about $143 million in a rolling reserve fund, which would be based on a five-year average, to counter interest rate volatility.
Sen. Don Gaetz, a former Senate president from Northwest Florida, suggested that legal aid organizations dip into the reserve.
“I’m caught on a first principle here,” he said. “I’m troubled that the Supreme Court would have to tell banks what interest rates they should pay.”
Sen. Kathleen Passidomo
Republican Sen. Kathleen Passidomo, a Naples real estate lawyer and, like Gaetz, a former Senate president, said she agreed with Murphy, the Sarasota banker, that lawyer trust funds tend to experience high levels of transactions.
“We could have hundreds of checks a day go in and out of our banks,” she said. “I’m going to vote for it today, [but] I don’t think it’s quite ready for the floor. I think we have to come up with a common sense solution.”
