Temporary Unlimited FDIC Coverage for Noninterest-Bearing Transaction Accounts (Including IOLTA Accounts)
2011 April 18 by Richard Lester
|On December 29, 2010, President Obama signed into law an amendment to the Federal Deposit Insurance Act to include Interest on Lawyer Trust Accounts (“IOLTAs”) within the definition of “noninterest-bearing transaction accounts.” On January 18, 2011, the FDIC Board of Directors issued a final rule to implement this amendment, and on January 21, 2011 the FDIC issued Financial Institution Letter FIL-2-2011 to provide further guidance on the matter to insured depository institutions.
Please be aware that since the last version of the Frequently Asked Questions dated December 20, 2010, some questions have been added, deleted, and amended. Specific references to the IOLTA changes are reflected in the following summary and in FAQs 2, 8, 17-25, and 33-36.
On November 9, 2010, the FDIC Board of Directors (the “Board”) issued a final rule (the “November Final Rule”) to implement Section 343 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“DFA”) that provides temporary unlimited deposit insurance coverage for noninterest-bearing transaction accounts at all FDIC-insured depository institutions (the “Dodd-Frank Provision”). The separate coverage for noninterest-bearing transaction accounts became effective on December 31, 2010 and terminates on December 31, 2012. The Dodd-Frank Provision and November Final Rule are discussed in Financial Institution Letter FIL-76-2010, issued November 9, 2010. The November Final Rule is published in the Federal Register at 75 Fed. Reg. 69577 (Nov. 15, 2010).
In issuing the November Final Rule, the Board confirmed it would not extend the Transaction Account Guarantee Program (“TAGP”) beyond its sunset date of December 31, 2010.
On December 29, 2010, President Obama signed into law an amendment (the “December 29 Act”) to the Federal Deposit Insurance Act (as amended by Section 343 of the DFA) to include Interest on Lawyer Trust Accounts (“IOLTAs”) within the definition of “noninterest-bearing transaction accounts.” As a result, IOLTAs will receive temporary unlimited insurance coverage at all FDIC-insured institutions (“IDIs”) from December 31, 2010 through December 31, 2012.
On January 18, 2011, the Board issued a final rule (the “January Final Rule”) to implement the December 29 Act. The January Final Rule is discussed in Financial Institution Letter FIL-2-2011, issued January 21, 2011.
The Dodd-Frank Provision is similar to the TAGP, except that it does not include low-interest Negotiable Order of Withdrawal (“NOW”) accounts. The Dodd-Frank Provision also differs significantly from the TAGP in that it applies at all IDIs with qualifying deposits.
The January Final Rule requires that by no later than February 28, 2011, each IDI that offers noninterest-bearing transaction accounts must post prominently an amended notice (see FAQ 17) in the lobby of its main office, in each domestic branch and, if it offers internet deposit services, on its website. The amended notice provides that noninterest-bearing transaction accounts are fully insured until December 31, 2012, and that IOLTAs are included in the definition of “noninterest-bearing transaction account.”
The November Final Rule required IDIs participating in the TAGP on December 31, 2010 to notify IOLTA customers by mail that IOLTAs would not receive unlimited insurance coverage starting January 1, 2011. The December 29 Act now includes IOLTAs in the definition of a “noninterest-bearing transaction account” entitled to temporary unlimited deposit insurance coverage. Financial Institution Letter FIL-2-2011 encourages (but does not require) IDIs who were participating in TAGP and sent individual notices to IOLTA holders advising that those accounts would not receive unlimited insurance coverage to send a revised notice explaining that IOLTAs will be fully insured through December 31, 2012. IDIs that have not already sent the individual notices need not send any such notice to IOLTA depositors. See www.fdic.gov for more information.