On February 18, 2011, the FDIC adopted updated final rules, regarding the unlimited insurance coverage, through December 31, 2012, for deposits held in Interest on Lawyers Trust Accounts (IOLTAs).  These accounts were previously covered by the FDIC’s Temporary Liquidity Guarantee Program, but were subsequently left out of Dodd-Frank’s expanded insurance coverage.

Recognizing that the interest paid on IOLTAs were used by States to support legal aid for low-income individuals, Congress passed (on December 22, 2010), and the President signed (on December 29, 2010), H.R. 6398, which amended the Federal Deposit Insurance Act to define noninterest-bearing transaction accounts to include IOLTAs.  The FDIC noted the potential for this Congressional action in its final rules adopted November 9, 2011, implementing the unlimited insurance coverage for noninterest-bearing transaction accounts, and provided that it would act quickly to notify depository institutions on how to react to the change.

Prior to year-end, the FDIC notified depository institutions that they were not required to send individual notices to IOLTA customers that such funds would not longer be provided with unlimited insurance, and that any institutions that had previously provided such notice were encouraged, but not required to, provide a revised notice advising that IOLTAs will receive unlimited insurance coverage as noninterest-bearing transaction accounts for two years ending December 31, 2012.

The FDIC’s revised final rule also provided new language for the posted notice required by 12 CFR Part 330.16.  Accordingly, all depository institutions that offer noninterest-bearing transaction accounts are required, no later than February 28, 2011,  to post prominently the following notice in the lobby of its main office, each domestic branch and, if it offers internet-based deposit services, on its website, the following notice:

All funds in a “noninterest-bearing transaction account” are insured in full by the Federal Deposit Insurance Corporation from December 31, 2010, through December 31, 2012. This temporary unlimited coverage is in addition to, and separate from, the coverage of at least $250,000 available to depositors under the FDIC’s general deposit insurance rules.

The term “noninterest-bearing transaction account” includes a traditional checking account or demand deposit account on which the insured depository institution pays no interest. It also includes Interest on Lawyers Trust Accounts (“IOLTAs”). It does not include other accounts, such as traditional checking or demand deposit accounts that may earn interest, NOW accounts, and money-market deposit accounts.

For more information about temporary FDIC insurance coverage of  transaction accounts, visit www.fdic.gov.