NCPA - National Center for Policy Analysis

Supreme Court Puts Crimp In Legal-Aid Funds (IOLTA)

June 16, 1998

In a 5-to-4 decision, the Supreme Court ruled Monday that interest generated on the funds of lawyers' clients held temporarily in bank accounts, called Interest on Lawyers Trust Accounts (IOLTA), belongs to the clients. State programs pool the interest on these accounts and use the state-administered funds to pay for legal aid to the poor.

The case was a challenge to the program in Texas brought by the Washington Legal Foundation, a conservative public interest law firm that advocates property rights.

  • The Court did not decide whether or not the programs constitute an unconstitutional taking of property, but sent the case back to lower courts to consider that question.
  • The programs, which operate in all 50 states, generate more than $100 million a year, which is mostly channeled through legal services foundations.
  • IOLTA programs originated in Australia in the 1960s, and were adopted in the United States when Congress first authorized banks to pay interest on checking accounts for some depositors.

According to a brief filed by the American Bar Association, IOLTA programs are second only to the federal government as a source of funds for legal services, accounting for as much as quarter of legal services budgets. Conservatives in Congress have been trying to kill or drastically curb the federal Legal Services Corporation for 20 years.

Sources: Linda Greenhouse, "High Court Ruling Puts in Doubt $100 million for Legal Services," New York Times, June 16, 1998.


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