New IOLTA Rule: What you need to know before Jan. 27
Wednesday, January 13, 2016
In two weeks, the new compliance rule which extends share insurance coverage to interest on lawyers trust accounts (IOLTAs) and other similar escrow accounts takes effect on January 27. As CUNA reported in News Now on January 6, “credit unions need to know their compliance requirements, as well as what accounts are covered.”
Before enactment, NCUA’s insurance coverage had been limited only to those clients of the attorney who were also members of the insured credit union where the attorney established the lawyers’ trust account.
Under the new law, only the lawyer or person administering the escrow account must be a member of the federally insured credit union in which such account is maintained for share insurance coverage to flow through to each client or principal, regardless of that person’s membership status.
“The law allowed the NCUA to also extend coverage to “other similar escrow accounts,” CUNA reported. This includes real estate escrow accounts and prepaid funeral accounts. “However, the NCUA has stated that if all the prepaid card program participants are members of the credit union and all recordkeeping requirements are met, the funds in the program are insured,” the article stated.
Additional facts about the new rule include:
- It does not impose any additional IOLTA recordkeeping requirements, but existing regulations state that records must show conclusive evidence of the relationship between the credit union and the member;
- Credit unions must ensure that Bank Secrecy Act (BSA) due diligence responsibilities are met, which could require updated BSA policies as IOLTAs and similar accounts may contain funds from nonmembers; and
- Funds in IOLTA and other similar escrow accounts do not count toward a federal credit union’s limit on the receipt of payments on shares from nonmembers.
In North Carolina, the North Carolina Bar is still awaiting approval from the N.C. Supreme Court on the necessary rule changes related to credit unions practicing the IOLTA program. Approval is expected by the end of this quarter or sooner. Meanwhile in South Carolina, the S.C. Supreme Court amended its rules in May 2015 to allow credit unions to become eligible institutions in South Carolina’s IOLTA program (Rule 412).
SC credit unions should contact the South Carolina Bar Foundation for process details and application prior to offering such accounts.
CCUL reflects on IOLTA final rule, sets sights on future reg advocacy efforts (12/28/15)
S.C. Supreme Court approves IOLTA program; Rule changes still underway in N.C. (6/1/15)
Parity Act opens door for credit union to offer IOLTAs in the Carolinas (2/2/15)