NCUA issues reg. alert guidance on new IOLTA coverage

January 29, 2016

ALEXANDRIA, Va. (1/29/16)--Interest on lawyer trust accounts (IOLTAs), real estate escrow accounts and prepaid funeral accounts are now eligible to receive enhanced federal insurance coverage from the National Credit Union Administration (NCUA).

In a regulatory alert (16-RA-02) issued this week, the NCUA provided guidance on enhanced share insurance coverage.

A bill allowing share insurance coverage for IOLTAs, an escrow account in a federally insured credit union on behalf of a lawyer’s clients, and other similar escrow accounts was signed into law in December 2014. The NCUA was required to pass a rule amending its regulations to match with the law.

The NCUA board finalized the rule at its December 2015 board meeting, and it became effective Jan. 27.

The NCUA decided that the similar escrow accounts language applies to real estate escrow accounts and prepaid funeral accounts as well.

“In any of these accounts, if the primary account holder (the lawyer or escrow agent) is a member of a federally insured credit union, then all other depositors who contributed money to the account will likewise be federally insured by NCUA--even if they are not members of that credit union,” reads the NCUA’s alert.

The guidance from the NCUA attached to the alert comes from the agency’s Office of General Counsel. It describes principles that will determine how NCUA could qualify other similar escrow accounts, on a case-by-case basis, for insurance coverage to pass through from a member to non-members.

“In general, if a person pays into an NCUA-insured account held by a member escrow agent--and if the member has a fiduciary duty to save the funds (like a lawyer, real estate agent, or funeral director does on behalf of clients)--then the account could be treated as an other similar escrow account,” the alert reads. “In such a case, pass-through coverage would apply so that the insured account held by the member escrow agent covers everyone who paid into that account--including members and non-members.”