- What is COLTAF?
- Are there IOLTA programs in other states?
- Who created COLTAF and Colorado’s IOLTA program?
- How does the COLTAF program work?
- Can lawyers maintain their COLTAF accounts anywhere?
- Are the COLTAF interest rate comparability requirements new?
- What are the product options available for COLTAF accounts?
- What is the Benchmark interest rate?
- What is the benefit of electing to pay the “Benchmark” interest rate on all COLTAF accounts?
- If the Benchmark option for compliance is selected now, can another option be selected later?
- Why does a financial institution have to notify COLTAF forty-five (45) days in advance of any rate reduction?
- Is there any way to avoid repeated compliance reevaluations?
- If a financial institution offers no other type of account, does this mean it can continue to offer only NOW accounts?
- What if some COLTAF accounts qualify for a higher interest rate product and others do not?
- Do we have to create multiple types of COLTAF accounts based upon different qualifications and rates?
- In establishing its interest rates, can a financial institution factor in its specialized customer service?
- Will lawyers be required to move their COLTAF accounts to banks paying higher rates?
- What if a financial institution does not offer higher rates of interest to non-COLTAF customers with comparable accounts?
- How will lawyers know if their financial institution is an Approved Institution?
- What is COLTAF’s Prime Partner Program?
- How do I get more information?
Q. What is COLTAF?
A. COLTAF is the Colorado Lawyer Trust Account Foundation, which administers Colorado’s IOLTA program. IOLTA is an acronym for “Interest on Lawyers’ Trust Accounts”, a program which collects and uses interest from certain lawyer trust accounts for civil legal aid and other charitable justice-related activities.
Q. Are there IOLTA programs in other states?
A. Yes. IOLTA programs operate in all 50 states and in the District of Columbia.
Q. Who created COLTAF and Colorado’s IOLTA program?
A. COLTAF and Colorado’s IOLTA program were established in 1982 by the Colorado Supreme Court, acting under its power to regulate lawyers and the practice of law.
Q. How does the COLTAF program work?
A. Under the Colorado Rules of Professional Conduct, which are promulgated by the Colorado Supreme Court, Colorado lawyers are required to hold client funds in interest-bearing or dividend-paying trust accounts, either for the benefit of individual clients or for the benefit of COLTAF. COLTAF accounts are for client funds that are nominal in amount or are expected to be held for a short period of time. The interest earned on COLTAF accounts is paid to COLTAF, and is used to help fund Colorado’s civil legal aid delivery system and other justice-related projects throughout the state.
Q. Can lawyers maintain their COLTAF accounts anywhere?
A. No. Lawyers must maintain their COLTAF accounts in an Approved Institution. To qualify as an Approved Institution, a financial institution must agree, among other things, (1) to promptly report any trust account overdraft to the Colorado Supreme Court’s Office of Attorney Regulation Counsel (“Regulation Counsel”); (2) to respond to subpoenas issued by Regulation Counsel; and (3) to pay on its COLTAF accounts the highest rate of interest or dividends generally available to its similarly-situated non-COLTAF accounts (so-called “interest rate comparability”).
Q. Are the COLTAF interest rate comparability requirements new?
A. The rules governing lawyers’ trust accounts and the COLTAF program were most recently amended by the Court effective June 15, 2014. The amended Rule includes a requirement that lawyers maintain their COLTAF accounts at institutions paying interest or dividends on COLTAF accounts that are at least as high as the interest or dividends paid at that particular institution on similarly situated non-COLTAF accounts. With these amendments, Colorado joined the 33 jurisdictions (32 states and the District of Columbia) that already had IOLTA rate comparability provisions in place. Recognizing that bank products and technologies have evolved significantly since IOLTA programs were first established, these comparability provisions ensure that IOLTA accounts receive the same benefits as similarly situated non-IOLTA accounts.
Q. What are the product options available for COLTAF accounts?
A. The Rule requires that COLTAF accounts earn interest or dividends no less than the highest interest or dividend rate earned on non-COLTAF accounts at the same institution when they meet the same eligibility requirements, typically account balance requirements. It also allows qualifying COLTAF funds to be invested in repurchase agreements fully collateralized by U.S. Government Securities or money market funds invested solely in U.S. Government Securities. Product types that should be included in identifying comparable products with the highest interest rates include:
- Checking accounts paying preferred interest rates, such as market-based or indexed rates;
- Public funds interest-bearing checking accounts, such as accounts used for non-profit organizations, municipalities, or government agencies;
- Interest-bearing checking accounts, such as a negotiable order of withdrawal (NOW) accounts, or business checking accounts with interest; and
- Business checking accounts with automated investment features in qualifying repurchase agreements or money market funds.
Note: Rather than evaluating its existing product portfolio, a financial institution may elect to satisfy the Rule’s interest rate comparability requirement by paying the “Benchmark Rate” as described below.
Q. What is the Benchmark Rate?
A. The Benchmark Rate, as provided for in the Rule and established by COLTAF, is a net interest rate equal to the higher of 0.35% per annum or 60% of the Federal Funds Target Rate. When the Federal Funds Target Rate is expressed as a range, the rate to be used for the benchmark is the highest value in the range. The Benchmark Rate is provided simply as an administrative convenience, and is intended to reflect an overall comparable rate offered by financial institutions in Colorado. Election of the Benchmark Rate is entirely optional.
Q. What is the benefit of electing to pay the Benchmark Rate on all COLTAF accounts?
A. Election of the Benchmark Rate results in an automatic determination of compliance with the comparability provisions of the Rule, and is thus a quick and simple way for financial institutions to achieve compliance, without an exhaustive evaluation of their existing product portfolio. In addition, the indexed nature of the Benchmark Rate allows for automatic adjustment in the future, eliminating the need for a financial institution to constantly revisit and reestablish compliance each time short term rates change. Also, for those financial institutions that may have higher internal rate structures, the Benchmark Rate operates to limit the absolute rate required under the Rule to one that is based on an overall comparable rate for Colorado, rather than what might otherwise be required by the bank’s internal rate structure. The Benchmark Rate is presented as an option and an administrative convenience for financial institutions. It may make sense for many institutions, but it is not required for participation in the COLTAF program.
Q. If the Benchmark Rate is selected now, can another option be selected later?
A. The election of the Benchmark Rate results in an automatic determination of compliance under the Rule, without further review by COLTAF of an institution’s product offerings. However, there is no requirement that a financial institution choose the Benchmark Rate initially, or having once chosen it, there is no requirement that a financial institution remain with the Benchmark Rate indefinitely. To change options, a financial institution must submit a new Financial Institution Compliance Statement, documenting the highest rate available to comparable non-COLTAF depositors, and COLTAF then has a 45-day administrative review period to evaluate the revised election.
Q. Why does a financial institution have to notify COLTAF forty-five (45) days in advance of any rate reduction?
A. Because COLTAF has the responsibility of ensuring continual compliance with the rate comparability provisions of the Rule, a reevaluation is necessary when there are rate reductions. The forty-five day review period is necessary so that reevaluation can occur before the rate reduction takes effect, thus avoiding the possibility of a gap in the bank’s eligibility to hold COLTAF accounts.
Q. Is there any way to avoid repeated compliance reevaluations?
A. Election of the Benchmark Rate results in an automatic determination of compliance with the comparability provisions of the Rule, and is thus a quick and simple way for financial institutions to achieve and maintain compliance. The Benchmark Rate is indexed and thus allows for automatic adjustment, eliminating the need for a financial institution to constantly revisit and reestablish compliance when short term rates change.
Q. If a financial institution offers no other type of account, does this mean it can continue to offer only NOW accounts?
A. It is important to review the bank’s entire portfolio of products to make sure there are no other comparable products, including tiered or preferred rate products, for which COLTAF accounts would qualify. COLTAF is happy to help you review your options. If, however, the institution only offers a single NOW account, then that will simply need to be certified to COLTAF on your Financial Institution Compliance Statement.
Q. What if some COLTAF accounts qualify for a higher interest rate product and others do not?
A.The Rule allows financial institutions to pay different rates on different accounts. However, it may be more practical to consider either a single blended rate or tiered rates, calculated and/or based upon the different products or rates for which individual accounts may qualify and resulting in the same overall return on all of your COLTAF accounts.
Q. Do we have to create multiple types of COLTAF accounts based upon different qualifications and rates?
A. No. If your bank would prefer, COLTAF can work with you to create a single blended rate or tiered rates that are based on your current portfolio of products, without establishing COLTAF accounts in those different product types.
Q. In establishing its interest rates, can a financial institution factor in its specialized customer service?
A. How a financial institution structures its rates internally is its own decision and, of course, financial institutions may choose to provide value to their customers in ways other than rates, including higher levels of service. In order to comply with the Rule, COLTAF must only ensure that COLTAF accounts are being treated equally and earning the same rates as other comparable accounts, whatever those rates are.
Q. Will lawyers be required to move their COLTAF accounts to banks paying higher rates?
A. No. Although COLTAF always encourages lawyers to use those banks paying the best COLTAF rates, the comparability provisions of the Rule require only that a financial institution pay on its own COLTAF accounts the highest interest or dividend rate generally paid on its own comparable non-COLTAF accounts. The Rule does not require a financial institution to pay rates other than those which the bank itself has established for other customers.
Q. What if a financial institution does not offer higher rates of interest to non-COLTAF customers with comparable accounts?
A. The financial institution would be in compliance with the rule, as long as it is paying the same rates to its COLTAF and non-COLTAF customers. The financial institution is required to do no more than pay the same rates on COLTAF accounts as it already pays on similarly situated non-COLTAF accounts. For example, some financial institutions may be offering non-COLTAF depositors preferred interest rates for larger balances, while not distinguishing between very small and very large balance COLTAF accounts. The Rule requires that large balance COLTAF accounts receive the same preferred rates for which they would qualify, were they not COLTAF accounts.
Q. How will lawyers know if their financial institution is an Approved Institution?
A. Under the Rule, COLTAF is charged with making determinations and informing Regulation Counsel as to each financial institution’s compliance with the comparability requirements of Rule 1.15. Lawyers need only confirm that their financial institution is on the list of Approved Institutions. The list of Approved Institutions is available at www.www.coltaf.org.
Q. What is COLTAF’s Prime Partner Program?
A. COLTAF’s Prime Partner Program is a program to recognize and promote those financial institutions that go above and beyond the rate comparability requirements of Rule 1.15 to actively support COLTAF in its mission to ensure that low-income Coloradans have access to critically-needed legal aid. Financial institutions that pay a net interest rate on all COLTAF funds of at least 75% of the Federal Funds Target Rate, or 0.50%, which is higher, are eligible to participate in the Prime Partner Program.
COLTAF’s Prime Partners are highlighted on its website and in multiple Colorado legal publications and lawyer events throughout the year, creating significant exposure in the law firm market. For additional information on the benefits of becoming a COLTAF Prime Partner and a Prime Partner Enrollment form, click here.
Q. How do I get more information?
A. For more information about COLTAF, the IOLTA program generally, or COLTAF’s Prime Partner Program, please call 303-863-7221 or email coltaf@legalaidfoundation.org.