Funding of legal aid to low-income Florida residents through interest earned on law firms’ client trust accounts would be significantly reduced under measures now being considered by state lawmakers.
The legislation – Senate Bill 498 and House Bill 173 – was proposed after talks between the Florida Banking Association (FBA) and the nonprofit Funding Florida Legal Aid (FFLA) failed to produce an agreement over how to determine the interest rates paid by banks on the law firm accounts, according to the Legislature’s analysis of SB 498.
Prior to 2023, interest rates on the accounts were based on interest derived from a bank’s “comparable business or consumer accounts,” the analysis states. These rates reflected interest rates banks charge for funds they lend to each other. But in 2023, the Florida Bar and state Supreme Court approved a new formula to maximize interest generated from these funds, one that expanded the definition of an interest- or dividend-bearing account and was based on the Wall Street Journal Prime Rate.
The result was a jump in funds flowing to FFLA, from about $9.5 million in fiscal year 2021-2022 to $279.7 million in fiscal year 2023-2024, according to the Legislature’s analysis. In turn, the FBA opposed the 2023 changes, saying they would have a negative impact on participating banks and that they reflect an overreach of the judicial branch’s powers into areas of bank regulation reserved for the executive branch.
The legislation now under consideration would return the Interest on Trust Accounts (IOTA) program to the funding formula in effect prior to the 2023 changes.
In a recent opinion article, Scott Jenkins, who represents Bankers for a Sustainable IOTA Program, called the 2023 rate changes unsustainable and unconstitutional.
“... With all of this extra money, FFLA has gone beyond their original noble cause and extended funds to hire lobbyists, support egregious lawsuits against Florida job creators and property owners, increase a student loan repayment program exclusively for attorneys and other questionable programs,” Jenkins wrote.
But an FFLA spokeswoman said the interest generated from the client accounts is being used as it was intended.
“(The) funds are used exclusively for civil legal aid services that assist low-income individuals and underserved communities in nonpolitical legal matters,” the spokeswoman told the Florida Record in an email.
An FFLA statement provided to the Record says the 2023 amendment approved by the state Supreme Court improved the program by increasing funding to those who needed it without using tax dollars, simplified the remittance process and eliminated a previous “comparability rule” that was difficult to administer.
In addition, only four banks have withdrawn from the IOTA program under the new rules, and participating banks increased from 151 to 170, according to the FFLA.
“This increase in participation speaks for itself as to the attractiveness of this market, and also belies the assertion that the amendment’s rate is so high that institutions will withdraw from the voluntary IOTA program and risk leaving Florida’s attorneys with inadequate choices for deposit of client trust funds,” the FFLA statement says.
Each year, $9 million to $10 million is deposited into law firm client trust funds opened at Florida banks, according to the Legislature’s analysis of SB 498.