About 1,500 New Jersey law firms and attorneys are scrambling to pull their client trust accounts out of J.P. Morgan Chase, under a state Supreme Court order issued last month declaring one of the biggest banks in the state an "unauthorized" trust account depository.
The state Office of Attorney Ethics began mailing letters last week, advising attorneys with Chase accounts that they have 60 days to certify their accounts have been moved to other, authorized banks.
The problem involves Chase declining to meet certain interest rate requirements mandated by the state for what are known as "Income on Non-Interest Bearing Lawyers Trust Accounts," or IOLTA.
Under state Supreme Court rules, interest paid on those accounts is used to finance legal representation for the poor in civil court matters and public education programs.
"We could not agree to some requirements of the IOLTA fund. So we are no longer an approved trust account depository in New Jersey," said Michael Fusco, a spokesman for Chase, noting the banks sent its own notices to lawyers.
Ellen Ferrise, executive director of the Bar of New Jersey’s IOLTA Fund, said the only time a bank was de-authorized for attorney trust accounts was in 2006, involving a smaller bank that was later re-instated.
"This is certainly something that is not typical," she said.
IOLTA was set up in 1988, permitting lawyers and law-firms to pool what are often small and temporary client deposits into common, interest-bearing accounts.
It frees attorneys from the costly practice of setting up individual accounts for each client deposit. In turn, interest from the pooled accounts gives the state money to help the needy, although the flow of dollars tends to dry up in poor economic times.
New Jersey lawyers are mandated to participate in the IOLTA program, and they must have all their trust accounts in state-authorized banks.
Those banks are required by the state to pay interest rates on the IOLTA accounts that are comparable to those offered on higher yielding accounts.
IOLTA officials set a range of rates, in part, through a complex comparison of quarterly rates among the 150 banks authorized by the state to hold trust accounts, and banks are given several options on how the rate is calculated.
"The rate paid by the bank on IOLTA accounts should be comparable to the best rate they offer to other customers and non-IOLTA accounts," Ferrise added.
"They (Chase) didn’t like their rate being compared to other banks."
Lawyers moving their trust accounts from Chase must go to other authorized banks, but only those paying the higher end on the IOLTA interest scale.
By Brian T. Murray, (973) 392-4153, firstname.lastname@example.org