IOLTA Revenue Enhancement: Is Now Really the Time?

There is an old maxim in business that when the economy contracts and revenue declines, it's time to spend more money on advertising. A cautious mind resists such advice: Why spend more when we have less? An entrepreneurial mind responds: Because we want to be ready to take advantage of the next upswing in the business cycle.

The dialectic applies today to the community of state-based Interest on Lawyers Trust Account (IOLTA) programs. Income and grant-making started sliding when interest rates and then the stock market began to plummet in 2007 and 2008, respectively. For more than two years, IOLTA leaders have tapped reserves (if there were any to tap), reined in grants, and looked with a mix of hope and worry toward the future. And while virtually all IOLTA programs have contracted, some have aggressively positioned themselves to harness the forthcoming economic recovery.

Activity abounds.

IOLTA programs are preparing for prosperity in many ways. Survey results from a recent national IOLTA conference revealed that IOLTA programs are:

• Creating "prime [bank] partner" programs and otherwise negotiating with banks to strengthen relationships and receive premium rates.
• Implementing interest rate comparability rules, including three IOLTA programs in 2009 and seven more in 2010 that have passed such amendments, bringing the total to 32 programs with rate comparability when Washington D.C.'s rule changes become effective in August.
• Converting to "mandatory" IOLTA, requiring that all lawyers participate in the program, which 42 IOLTA programs will require by mid-2010.
• Establishing a system to monitor banks' compliance with rate comparability requirements, which is central to actually benefitting from the interest rate rebound when it comes. The Resource estimates that even a small state, whose biggest bank has $20 million to $40 million in IOLTA balances, can gain (or avoid losing) tens or even hundreds of thousands of dollars annually by investing in a monitoring process that detects when a bank's IOLTA rates have drifted from rate comparability, and taking action immediately to help the bank get back into alignment and preserve its eligibility to offer IOLTA accounts.
• Crafting reserve policies designed to offset the next economic downturn and stabilize grant-making in good and bad years.

Hope on the horizon

The payoff from all of this enterprising work by IOLTA programs may lie just ahead. Comerica Bank in mid-April released an update of its U.S. economic forecast that calls for the Federal Funds Rate to climb by a factor of 10 to 2.50 percent by mid-2011, starting as early as September. That news is sure to echo in the conference rooms at the 2010 Summer IOLTA Workshops, slated for August 5-6 in San Francisco.

While there is no doubt that the current economic climate has created a severe challenge for IOLTA programs and the civil justice organizations that rely on them for funding, The Resource believes the action that IOLTA leaders take now will have a dramatic impact on the size of IOLTA grants for years to come.

The Resource can help strengthen your IOLTA program's capacity.

The Resource has aided one out of every four IOLTA programs located in the United States , with more than 1,600 banks participating in IOLTA. With our help, their net revenue streams increased by more than $140 million per year at the peak of the last economic upturn. We can help your state's IOLTA program increase revenues too by:

• Conducting revenue impact studies - To determine how much your state could reap through a rate comparability rule and to set a fair and effective "benchmark" or "safe harbor" rate.
• Implementing your comparability rule - To join the multiple states we've helped to implement rules with more than 1,600 banks.
• Making sense of your remittance data - To understand what the rates & balances mean in terms of opportunities for increasing revenue.
• Monitoring bank compliance - To ensure banks continue to comply with your rule as products, rates, & fees change.
• Forecasting your future revenues - To allow you to develop reserves & stabilize grants.

About The Resource for Great Programs

Now in our 26th year, The Resource for Great Programs is a consulting firm based in Michigan that assists civil legal aid programs and their funders across the nation.

Our services concentrate on points of leverage in our client organizations where small-dollar investments can deliver big gains in impact.

Our president Ken Smith, our IOLTA Project Manager Kelly Thayer, our Information Services Project Manager Kathy Garwold and the remainder of our staff are experts in data analysis, policy and demographic research, program evaluation, and leadership disciplines, supported by our main office in Traverse City, Michigan. In addition, we can extend our reach as needed via a growing network of other firms and consultants with whom we collaborate as opportunities arise for producing extraordinary outcomes for our clients.