Two banks help boost Foundation’s IOTA returns
Two banks have joined a Florida Bar Foundation campaign to boost interest paid on lawyer IOTA accounts, raising the Foundation’s IOTA income by about $9 million.
The campaign, known as “Community Champions,” asks banks participating in Florida’s IOTA program to consider one of three changes to interest payments on their existing IOTA accounts. Depending on the bank’s choice, a bank would earn either a Gold, Diamond, or Platinum designation.
Wells Fargo was the first bank to respond and participate in the program. Another bank, which wishes not to be named — pays 50% of the Federal Funds Target rate.
Foundation Executive Director Donny MacKenzie, responding to a question at the Pro Bono Legal Services Committee meeting on October 17 at the Bar’s Fall Meeting, said other banks are being approached about joining the program.
He said the Foundation hopes to get the top 10 IOTA banks in the state to participate in some fashion as a “Community Champion,” which could boost Foundation income by approximately $40 million per year, effectively ending more than a decade of depressed IOTA revenues caused by near zero interest rates that have lingered since the Great Recession.
The campaign asks banks to: 1) pay 10 basis points (0.1%) over comparable rates on balances of $100,000+ and not deduct service charges and fees from the interest, (Platinum); 2) pay 10 basis points over comparable rates on balances exceeding $100,000 (Diamond); or 3) Pay comparable rates and not deduct service charges and fees from the interest (Gold).
Well Fargo chose to substantially raise the interest rates it pays on IOTA accounts and another bank, which wishes to remain unnamed, is now paying half the going Federal Funds Target Rate on IOTA accounts.
MacKenzie said banks are paying around 0.1% to 0.2% on checking accounts. Under the existing IOTA rule, banks must pay comparable rates on comparable accounts.
“As long as low rates on consumer accounts remain historically low, comparable IOTA rates will remain low as well,” MacKenzie said after the meeting. “Before the Great Recession, IOTA accounts were averaging more than 1.5% and we had annualized IOTA revenues of approximately $44 million. Today, there is more money on deposit in trust accounts ($5.5 to $6 billion today vs. about $4.5 billion in 2007), but the average rate of return on IOTA accounts is only. 28%. Consequently, IOTA annual revenues have been around $5.5 million the past 10 years.”
The current Fed rate is between 1.75% and 2%, which means the IOTA rate under the Foundation’s plan, for banks that take that option, would be several times what most banks are paying.
MacKenzie said the Foundation is approaching all 175 banks in Florida that have lawyer IOTA accounts about ways to improve IOTA returns that assist civil legal aid.
He said 117 banks have already waived service charges and the Foundation realizes about $10 million annually in gross interest from those banks.
The Foundation, MacKenzie said, will be asking the banks to either raise their interest rate by 10 basis points or pay half of the Federal Funds Target Rate.
For the 58 banks that still impose service charges, MacKenzie said the Foundation will be asking them to waive those charges, which could bring in an extra $2.4 million per year.
These recent efforts coupled with other factors has boosted the Foundation’s annual grant allocations to $16 to $17 million.
“We got a pretty good bump last year,” MacKenzie said. “We got a very generous and innovative gift from the [U.S.] Middle District court [entrustment of a sanctions order] and a slight tick in interest rates for a small amount of time, which made a big difference.”
Despite the possibilities, MacKenzie said the current IOTA model may never again generate the revenue it did in the past.
“It’s pretty desperate. This is an existential crisis,” said MacKenzie, adding that it can’t be overlooked that even when IOTA revenue was at its high point, only about 20% of the overall civil legal needs of the poor were being addressed.”
