WASHINGTON (1/6/16)--With share insurance coverage extended to interest on lawyers trust accounts (IOLTAs) and other similar escrow accounts starting Jan. 27, credit unions need to know their compliance requirements, as well as what accounts are covered. The U.S. Congress passed legislation requiring the coverage in December 2014, and the National Credit Union Administration (NCUA) finalized its implementing rule last month.
Under an IOLTA program, an attorney or law firm may establish an account at a financial institution to hold clients' funds to pay for legal services or other purposes. The Credit Union National Association’s CompBlog looked into the details credit unions should know about the new requirements.
The final rule states that 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 they are members or not.
The law allowed the NCUA to also extend coverage to “other similar escrow accounts.” Per the agency, “similar” accounts are accounts held by individuals that are licensed professionals or other individual serving in a fiduciary capacity holding funds for the benefit of a client as part of a transaction or business relationship.
Examples of these types of accounts include real estate escrow accounts and prepaid funeral accounts.
While CUNA pushed the agency to include prepaid card programs in the regulation, the agency cited the different structure of such accounts in declining to extend pass-through coverage. However, the NCUA has stated that if all the prepaid card program participants are members of the credit union and all recordkeeping requirements are met, the funds in the program are insured.
Other things credit unions should know about the new rule include: