The NCUA’s interest on lawyer trust accounts (IOLTAs) final rule allows for share insurance coverage of “other similar escrow accounts,” and CUNA has received a number of questions about what this means. One question asked if the credit union needed to consult with the NCUA before extending coverage to landlord/tenant escrow accounts.
The agency recognizes that “similar” is a relative term and without further guidance the agency may have to analyze each potential escrow account on a case-by-case basis whether it is similar enough to an IOLTA to meet the rule’s requirements for pass-through insurance.
The new rule shifts the membership requirement from the clients of the attorney or escrow agent, who own the funds in the account, to the attorney or escrow agent. In other words, as long as the attorney or escrow agent is a member of the credit union, then the funds in the IOLTA/escrow accounts will be insured on a pass-through basis on behalf of the individuals who actually own the funds, whether or not they are members.
NCUA staff has noted that credit unions’ requests to the agency for whether certain escrow accounts meet the rule’s definition should be extremely specific, detailed and demonstrate “how the account complies with the new rule and the discussion in the federal register preamble to the rule.”
Some of the points discussed in the Federal Register preamble to the rule include:
A recent CUNA CompBlog entry delves deeper into the preamble and the IOLTA regulation.