ACCESS TO JUSTICE
DIANA M. POOLE, J.
Until the 2008 financial crisis and its long aftermath of near-zero interest rates, COLTAF was the second largest funding source for Colorado Legal Services, Colorado’s statewide, strafed legal aid program.
Most lawyers know that COLTAF accounts are a required and very convenient way to hold short-term and nominal client funds. What may not be as widely known is COLTAF’s critical role in funding Colorado’s civil legal aid delivery system. Because COLTAF’s only regular source of revenue is the interest earned on lawyers’ COLTAF accounts, COLTAF’s funding ability is entirely dependent on the rate of return earned on the balances held in those accounts. What your bank is paying on your COLTAF account has a direct impact on access to civil justice in Colorado.
What is COLTAF?
The Colorado Lawyer Trust Account Foundation (COLTAF) is Colorado’s Interest on Lawyers’ Trust Accounts (IOLTA) program. IOLTA programs exist in all 50 states, the District of Columbia, and Puerto Rico. Across the country, they are among the most significant sources of funding for programs that provide essential legal help to those who would otherwise be forced to navigate our civil justice system alone, often in the face of potentially devastating consequences.
Authorized by the Colorado Supreme Court and established in 1982, COLTAF collects the interest earned on COLTAF accounts and uses these funds to make grants. Since its founding, COLTAF has made grants totaling nearly $40 million. Until the 2008 financial crisis and its long aftermath of near-zero interest rates, COL-TAF was the second largest funding source for Colorado Legal Services, Colorado’s statewide, staffed legal aid program.1 COLTAF has also provided significant funding over the years for bar-sponsored pro bono programs and other justice-related organizations throughout the state. Today, COLTAF funds are about a quarter of what they were before the financial crisis. COLTAF grant recipients are struggling to provide services with substantially reduced COLTAF funding, and COLTAF has not been able to award any discretionary grants since 2011.
Interest Rate Comparability for COLTAF Accounts
Historically, due to the split between the legal and beneficial ownership of COLTAF accounts and thus the absence of normal competitive pressures, there has been a significant disparity between interest rates paid on COLTAF accounts and those paid on comparable non-COLTAF accounts, most notably with respect to higher-balance accounts. Colorado took an important step toward remedying this situation in 2014, when the Colorado Supreme Court approved amendments to Colorado Rule of Professional Conduct 1.15, which, among other things, established so-called “interest rate comparability” for COLTAF accounts.2 Interest rate comparability simply ensures that COLTAF accounts are treated fairly and receive the best rate for which they qualify at a particular bank. It requires banks, as a condition of being approved to provide COLTAF accounts by the Office of Attorney Regulation Counsel, to pay the highest interest or dividend rate generally available to their other customers, when their COLTAF accounts meet the same minimum balance or other requirements.
Unfortunately, to date, interest rate comparability has had little impact on COLTAF’s revenue. But this is beginning to change. When Colorado’s comparability requirement was adopted in 2014, banks were still paying near-zero interest rates on all short-term deposits, as they had been since the 2008 financial crisis. A rate comparability requirement for COLTAF accounts will only result in increased revenue if there are comparable non-COLTAF products and accounts that are earning higher rates. Very low rates on short-term deposits persisted through most of 2017, despite quarter-point increases in the Federal Funds Target Rate (FFTR) in...