The FDIC and Clients’ Funds: an issue to keep an eye on

See October 22, 2008 letter from ABA to Sheila Bair, Chair, FDIC 

The letter describes the serious risk to legal aid funding created by the FDIC’s recent decision to insure non-interest bearing accounts without limit.  Lawyers have a common law fiduciary obligation to protect client funds. The FDIC raised the coverage on interest bearing accounts to $250,000 and then promised to insure non-interest bearing accounts without limit until December 31, 2009.  It may be the case (one needs to read the fine print) that the safest choice for lawyers who have a fiduciary responsibility to protect client funds to put clients’ funds in non-interest bearing accounts to take advantage of the unlimited FDIC coverage. In many states, Connecticut included, lawyers have a statutory and RPC obligation, subject to certain exceptions, to deposit clients’ funds in IOLTA accounts, the primary funding source for legal aid.  The ABA is asking the FDIC to extend unlimited coverage to IOLTA accounts.  Stay tuned.