Senate Banking and Insurance Committee moves IOTA bill

Senate Banking and Insurance Committee moves IOTA bill

Legislation that would have the state’s chief financial officer set the rates paid on the lawyer IOTA accounts, instead of a recently enacted Florida Supreme Court rule requiring lawyers to keep their trust accounts in institutions that tie interest rates for IOTA accounts to specific indexed rate points, has cleared its first legislative hurdle.

SB 1336, by Sen. Erin Grall, R-Vero Beach, passed out of the Senate Banking and Insurance Committee January 22 by a vote of 8-2.

IOTA accounts are where attorneys store short-term client funds and are voluntarily offered as a line of business by banks. The interest the banks pay on the accounts is  used to the benefit of the court’s IOTA program and distributed across the state to legal aid organizations providing civil legal aid through grants awarded by FFLA (formerly The Florida Bar Foundation).

“This to me is not a debate about legal aid at all,” Grall said. “I understand that this is the way that legal aid is funded, but this is actually a conversation about the de facto regulation of banks through the mandatory behavior of attorneys.”

Under the proposed measures, the state’s Chief Financial Officer would set the interest rates each quarter and be prohibited from ever setting that rate above 2.55%.

The court amended Bar rules last year to require lawyers to keep their IOTA accounts in institutions that tie interest rates for IOTA accounts to the Wall Street Journal Prime Rate. The rule went into effect May 15, 2023, and is already bringing in more money that pays for free civil legal representation to Floridians living near the poverty line.

The Florida Bankers Association supports the legislation and is challenging the court’s new rule in a rehearing now pending with the Supreme Court, arguing the rule is financially unsound.

“We respect the Supreme Court. We understand their timeframe,” said Dennis Murphy, the president and CEO of Gulfside Bank in Sarasota to the Senate Banking and Insurance Committee. “But frankly, we’re bringing this legislation forth because we need relief now.”

Kenneth Pratt, a Florida Bankers Association lobbyist, said, “We’re trying to save this program. We don’t want to see banks get out of this line of business.”

The number of banks participating in the IOTA program has increased since the court modified the rule in March from 151 to 162, according to FFLA. The modified program is bringing in about $23 million a month in civil legal aid that serves about four million low-income Floridians with their civil disputes.

Sen. Geraldine Thompson, a Democrat from Windermere, voted against the measure in the Senate Banking and Insurance Committee. Her husband and retired judge, Emerson Thompson, was previously the president of FFLA, when it was still called The Florida Bar Foundation.

“I would ask that we comply with the rule that was promulgated by the Florida Supreme Court…. And that we recognize that this is in litigation… And that we not pass this bill today” said Thompson during the debate.

Both the court’s rule and the first paragraph of the bill create an interest-rate floor that voluntarily participating banks must pay on IOTA accounts based on what the rest of the market is doing through different formulas.

Jody Hudgins, a retired banker and former longtime teacher at The Florida Bankers Association who is the architect of the court’s modified rule, told the Bar News last year that the court’s rule would ensure the banks still make financial gains on IOTA accounts of at least 3%.

The proposed measures would cap the maximum percentage banks would have to pay on them. But under the second paragraph of the bills, IOTA accounts would also bring in potentially less than that capped amount, because banks could pay a minimum interest of .25% as long as that rate is comparable to their non-IOTA accounts, which is similar to the IOTA rule before the court made its changes in March.

“If you’re inclined to send this bill forward, send it forward with only the first paragraph, which is the formula driven by market rates,” said Hudgins.

The Senate panel passed the bill in its entirety.

The identical companion, HB 1253, by Rep. Robert Brackett, R-Vero Beach, is in the House.