IOLA and Civil Legal Services FAQ
IOLA FAQ:
2. Where does the money in an IOLA account come from?
3. Where does the interest generated from IOLA accounts go?
History: In 1983, with the strong support of the New York State Bar Association, the legislature created the New York State Interest on Lawyer Account Fund ("IOLA") as a means to provide additional financial support to civil legal service organizations that had been decimated by federal budget cuts.
Purpose: The IOLA program requires attorneys to deposit funds received from clients either in interest bearing accounts for the benefit of the clients or in interest bearing IOLA accounts, in accordance with the provision of the statute (Judiciary Law §497). The interest on IOLA accounts is pooled and provides the money for grants made by the Board of Trustees of the IOLA Fund to non-profit civil legal services providers across the state.
To date, IOLA has provided more than $228 million in grants for providers of civil legal services to low-income New Yorkers, furthering the goal of equal access to justice for all.
Attorneys routinely receive funds to be held in trust for future use. If these funds are large in amount or to be held for a long period of time, the attorney customarily deposits the money in a certificate of deposit or other interest bearing account in the name of, and for the benefit of, the client. However, in the case of deposits which are small in amount or are short term in duration, it is impractical to establish separate interest bearing accounts. In the past, attorneys had no alternative except to place these nominal or short term trust deposits in unsegregated, non-interest bearing checking accounts.
The IOLA program requires attorneys to open IOLA accounts for the deposit of these nominal or short term funds. These otherwise idle funds are then pooled to generate interest income which is forwarded directly from the financial institution to the IOLA Fund. The Fund, which is administered by a 15 member Board of Trustees, awards grants to civil legal service providers.
As a result, no client is deprived of any practical income opportunity since the administrative costs to the lawyer and the service charges of the financial institution, coupled with a resulting tax liability to the client, would more than offset any income earned.
Banking institutions are required to transmit directly to the IOLA Fund, at least quarterly, any interest accrued on an IOLA account. The IOLA Board of Trustees then uses this money to fund:
- Organizations providing direct civil legal assistance to the poor; and
- Programs that promote the Administration of Justice and provide civil legal service to other underserved populations, such as the elderly or disabled (21 NYCRR §7000,13).
To qualify for IOLA grant funds, legal service providers must be not-for-profit tax exempt entities. IOLA funds may not be used to provide legal assistance with respect to any criminal proceeding or any habeas corpus actions collaterally attacking a criminal conviction or any other purpose prohibited by regulation.
