The Florida Senate
BILL ANALYSIS AND FISCAL IMPACT STATEMENT
(This document is based on the provisions contained in the legislation as of the latest date listed below.)
Prepared By: The Professional Staff of the Committee on Banking and Insurance
BILL: SB 1336
INTRODUCER: Senator Grall
SUBJECT: Interest on Trust Accounts
DATE: January 19, 2024
ANALYST STAFF DIRECTOR REFERENCE ACTION
1. Johnson Knudson BI Pre-meeting
2. AEG
3. FP
I. Summary:
SB 1336 requires the Chief Financial Officer (CFO) to establish the interest rates that must be
paid by financial institutions on trust accounts that attorneys use for the deposit of nominal or
short-term client funds. The CFO is required to set the rate of interest on trust accounts (IOTA)
quarterly. The bill requires the CFO to set the interest rate based on the higher of 68 points of the
upper bound of the federal funds rate or 0.25 percent, and the annual percentage yield of such
interest rate would be capped at 2.55 percent.
As an alternative to paying the established rate described above, a participating financial
institutions may pay an annual percentage yield that is the higher of the highest interest rate or
dividend generally available from the institution to its non-IOTA business or consumer account
customers, or its non-maturing deposit account customers, or 0.25 percent, when IOTA accounts
meet or exceed the same minimum balance or other eligibility qualifications.
The Interest on Trust Account (IOTA) program, was implement by rules adopted by the Florida
Supreme Court in 1981, and is administered by Funding Florida Legal Aid. Currently, the rule
prescribes that, when the Wall Street Journal Prime Rate (indexed rate) is between 3.25 and 4.99
percent, the minimum interest rate paid, net of all fees and service charges, must be no less than
3.00 percent below the indexed rate in effect on the first business day of each month. When the
indexed rate is 5.00 percent or above, the yield must be no less than 40 percent of the indexed
rate in effect on the first business day of each month. The interest generated on these trust
accounts is used to fund legal assistance for low-income individuals, improvements in the
administration of justice, and law student assistance. As of January 16, 2023, the indexed rate
was 8.5 percent.
The fiscal impact on state and local governments is expected to be insignificant.
REVISED: BILL: SB 1336 Page 2
II. Present Situation:
Chief Financial Officer
The Chief Financial Officer (CFO) serves as the head of the Department of Financial Services.
The CFO is a member of the Cabinet and is designated as the chief fiscal officer
1
of the state and
is responsible for setting and approving accounts against the state and keeping all state funds and
securities.
2
The Florida Supreme Court
The Supreme Court of Florida has the exclusive and ultimate authority
3
to regulate the admission
of persons to the practice of law and the discipline of those persons who are admitted to
practice.
4
The Court performs those official functions through two separate arms: the Florida
Board of Bar Examiners, which screens, tests and certifies candidates for admission to the
practice, and The Florida Bar, which is the investigative and prosecutorial authority in the lawyer
regulatory process.
5
The Florida Bar
The Supreme Court of Florida establishes the authority and responsibilities of The Florida Bar,
an official arm of the Court.
6
The purpose of The Florida Bar is to inculcate in its members the
principles of duty and service to the public, to improve the administration of justice, and to
advance the science of jurisprudence.
7
The governing body of The Florida Bar is its Board of
Governors consisting of 52 members.
8
The Board of Governors has exclusive authority to adopt
matters of policy concerning the activities of the Bar, subject only to the limitations imposed by
the Rules Regulating The Florida Bar, adopted by the Florida Supreme Court.
Funding Florida Legal Aid
The Florida Bar Board of Governors created The Florida Bar Foundation in 1956 as a nonprofit
corporation chartered to foster law-related public interest programs on behalf of Florida’s legal
profession. In 2023, the Foundation changed its name to Funding Florida Legal Aid (FFLA).
9
The FFLA is a 501(c)(3) nonprofit organization whose mission is to increase access to the justice
system for people of limited means by funding legal services, developing tools and programs,
and support legal aid providers and the courts. Of Florida’s approximately 7.5 million
households, over 1 million live in poverty, and over 4.2 million Floridians have an income that is
1
FLA. CONST. art. IV, s. 4.
2
Section 17.001, F.S.
3
FLA. CONST. art. V, s. 15.
4
https://www.floridabar.org/about/faq/ (last visited Jan. 15, 2024).
5
Id.
6
R. Regulating Florida Bar, Rule 1-2. (605 So.2d 252).
7
Id.
8
The Florida Bar, What we do (July 2023) https://www.floridabar.org/about/faq/what-we-do/ (last visited Jan. 17, 2024).
9
https://fundingfla.org/about-ffla/ffla-overview/ (last visited Jan. 15, 2024). BILL: SB 1336 Page 3
below 125 percent of the Federal Poverty Level, making them eligible for services from one of
Florida’s civil legal aid organizations.
10
The FFLA is required to distribute no less than 85 percent of IOTA funds collected in its fiscal
year no later than six months after the end of its fiscal year.
11
The FFLA’s fiscal year runs July 1
to June 30. On December 8, 2023, the board of directors of the FFLA approved the distribution
of $33,870,910 of IOTA funds to 35 Florida legal aid organizations.
12
Interest on Trust Accounts Program
In 1978, the Board of Governors of The Florida Bar, with the concurrence of the Board of
Directors of The Florida Bar Foundation, Inc., petitioned the Supreme Court requesting that the
Court amend the rules governing the practice of law in Florida to authorize attorneys to invest
trust funds held for clients in order to generate investment income for the benefit of public
interest programs related to the legal profession.
13
In its opinion, In re Interest on Trust
Accounts,
14
the Supreme Court found that the creation of the IOTA program was within the
Court's constitutional authority to regulate the practice of law and adopted the nation's first
Interest on Trust Accounts Program (IOTA).
15
After several minor amendments,
16
and delays
due to uncertainty as to the appropriate federal income tax treatment of the interest payable to
The Florida Bar Foundation, Florida's IOTA program, permitting the participation by lawyers
and law firms, became operational in September 1981. Participation by financial institutions is
voluntary; however, those that do participate must comply with the IOTA requirements,
approved by the Supreme Court.
The rule requires all nominal or short-term funds of clients or third persons to be pooled into an
interest-bearing account benefitting IOTA if the lawyer has determined that the funds cannot
practicably be invested for the benefit of the client or third party.
17
However, client or third
parties trust funds that lawyers have determined can earn income for the individual client or third
person, in excess of the costs to secure such income, cannot be deposited into IOTA accounts.
18
Members of The Florida Bar are required to certify annually in writing on the annual
membership fee statement that they are in compliance with, or exempt from, the provisions of
the IOTA program, as set out in rule 5-1.1(g) Rules Regulating The Florida Bar.
19
2023 IOTA Amendments Adopted by the Florida Supreme Court
10
IN RE: AMENDMENTS TO RULE REGULATING THE FLORIDA BAR 5 -1.1(g). (June 18, 2021) SC20-1543 Opinion
(flcourts.gov) (last visited Jan. 15, 2024).
11
R. Regulating the Fla. Bar Rule 5.1-1(g).
12
FFLA to distribute $33.8 million in IOTA funds to 35 legal aid organizations | FFLA (fundingfla.org) (last visited Jan. 19,
2024).
13
Original jurisdiction vests in the Supreme Court pursuant to Art. V, s. 15, Fla. Const.
14
Supra at 1.
15
A Petition of Fla. Bar, 356 So. 2d 799 (Fla. 1978).
16
A Petition of Fla. Bar, 372 So. 2d 67 (Fla. 1979).
17
Under Bar Rule 5.1-1(g).
18
FFLA, Interest on Trust Accounts Program IOTA - Interest on Trust Accounts Program (fundingfla.org) (last visited Jan.
18, 2024).
19
Attorneys Law Firms | FFLA (fundingfla.org) (last visited Jan. 14, 2024). BILL: SB 1336 Page 4
In March 2023, the Florida Supreme Court
20
adopted amendments to rules regulating The Florida
Bar, including the rule regulating the trust accounts in the following manner:
Expands the definition of an interest or dividend-bearing trust account to include a business
or consumer deposit account.
21
Requires eligible institutions to maintain IOTA accounts that pay the highest interest rate or
dividend generally available from the institution to its non-IOTA business or consumer
account customers, or its non-maturing deposit account customers when IOTA accounts meet
or exceed the same minimum balance qualifications.
22
Requires eligible institutions to tie interest rates for IOTA accounts to specific indexed rate
points.
23
The amendments were set to take effect May 15, 2023. In determining the interest rates for IOTA
accounts, the 2023 amended rules requires the following:
When the Wall Street Journal Prime Rate (indexed rate) is between 325 and 499 basis
points (3.25 and 4.99), the minimum interest rate paid net of all fees and service charges
(yield) must be no less than 300 basis points (3.00 percent) below the indexed rate in
effect on the first business day of each month. When the indexed rate is 500 basis points
(5.00 percent) or above, the yield must be no less than 40 percent of the indexed rate in
effect on the first business day of each month.
24
According to a recent Florida Bar News article, under the amended rule, when the prime rate is
between 3.25 percent and 5.00 percent, then the trust account rate bank pay out is between .25
percent and 2.00 percent, resulting in a 3.00 gain. After that the gains at a 7.00 interest rate, for
example, banks will pay out 2.8 percent, resulting in a 4.2 percent gain.
25
Since the Court’s rule went into effect in May 2023, the attorney trust accounts have earned
more than $60 million for civil legal aid, a significant increase compared to the $9.5 million to
$16.2 million per year earned from 2018 to 2022.
26
According to The Florida Bar, the
participation of banks is noteworthy, with only a minimal percentage (2.5 percent) of the 161
banks providing Florida attorney IOTA accounts discontinuing the service since the changes.
27
Subsequently on March 31, 2023, the Florida Bankers Association (FBA) filed a motion
28
for a
rehearing of the Court’s March 16, 2023 opinion. As an alternative, the FBA seeks to file
comments out of time or leave to reappear as amicus curiae on rehearing. The motion states that
the use the Wall Street Prime Rate (index rate) means that the minimum interest rates paid on
20
SC22-1292 (Mar. 16, 2023).
21
R. Regulating Fla. Bar Rule 5-1.1(g)(1)(E).
22
R. Regulating Fla. Bar Rule 5-1.1(g)(5)(A).
23
R. Regulating Fla. Bar Rule 5-1.1(g)(5)(B).
24
Id.
25
Measure would have Florida’s CFO set the rate paid on IOTA accounts – The Florida Bar (Jan. 16, 2024) (last visited Jan.
19, 2024).
26
Florida Bar, IOTA Rule White Paper, (Jan. 19, 2024) (on files with Senate Committee on Banking and Insurance
Committee).
27
Id.
28
Florida Bankers Association’s Motion, In Re: Amendments to Rules Regulating the Florida Bar 5-1.1 (Mar. 31, 2023),
Case No. SC22-1292 70f6bc15-9b6e-41b5-8c56-65db9b750a31 (flcourts.gov) (last visited Jan. 19, 2024). BILL: SB 1336 Page 5
IOTA accounts are significantly higher than any other interest rate offered by any bank on
consumer or business transactional accounts.
29
Thus, the FBA asserts that the implementation of
the amendment will have a disproportionate negative effect by causing an abrupt and
destabilizing decline in the number of banks participating, resulting in decreased choice for, and
significant cost-shifting to, Florida law firms.
30
The FBA motion also asserts that the 2023 IOTA amendment conflicts with the federal
regulation of national banks and is thus federally preempted under the Supremacy Clause.
31
The
FBA contends that the IOTA amendment in essence dictates the interest rates for national banks
and is thus preempted because it seeks to control or otherwise prevent or significantly interfere
with national banking powers.
32
On April 14, 2023, The Florida Bar provided a response to the FBA’s motion for rehearing.
33
The Bar maintains that this minimum rate is within the reasonable range of the fair market price
to charge banks to receive the billions of dollars of capital in these lawyers’ IOTA trust
accounts.
34
Further, The Florida Bar contends that this rule does not compel any bank to offer
this interest rate.
35
The Florida Bar asserts that by setting this objective standard, every lawyer
has a goal that the Bar maintains is achievable, and these lawyers will now negotiate more
aggressively to achieve what the Bar maintains is the fair market price.
36
IOTA Programs in Other States
According to the American Bar Association, interest on lawyers’ trust accounts (IOLTA) or
IOTA in Florida, currently operate in 50 states, the District of Columbia, Puerto Rico, and the
U.S. Virgin Islands.
37
The Texas and Georgia program are described below.
In Texas, the Access to Justice Foundation administers the IOLTA program, which was
established in 1984 by the Supreme Court of Texas.
38
As of July 1, 1989, all Texas attorneys
handling qualifying client funds must establish an IOLTA account, unless a low balance exempts
them.
39
Pursuant to the Supreme Court of Texas, attorneys must hold IOLTA accounts in eligible
banks, which are those that pay interest rates comparable to other similar situated accounts.
The attorney or law firm establishing the interest-bearing demand account must attempt in good
faith to obtain a rate of interest payable on the account not less than the rate paid by the
depository institution to other depositors with accounts of similar size.
40
A higher rate offered by
the institution on deposits meeting certain time requirements or minimum amounts, such as those
29
Id.
30
Id.
31
Id.
32
Id.
33
The Florida Bar’s Response to the FBA’s Motion for Rehearing, Case No. SC22-1292. The Florida Supreme Court. (Apr.
14, 2023) a8e413ea-a6d4-417f-a1b0-2536bb7c9292 (flcourts.gov) (last visited Jan. 15, 2024).
34
Id.
35
Id.
36
Id.
37
American Bar Association, IOLTA Overview, Overview (americanbar.org) (last visited Jan. 17, 2024).
38
Directory of IOLTA Programs (americanbar.org) (last visited Jan. 17, 2024).
39
Texas Access to Justice Foundation, TAJF- Funding (teajf.org) (last visited Jan. 17, 2024).
40
See State Bar of Texas Rules, Article XI, Sections 5-6. In the Supreme Court (teajf.org) (last visited Jan. 17, 2024). BILL: SB 1336 Page 6
offered in the form of certificates of deposit, may be obtained if there is no impairment of the
right to withdraw or transfer principal immediately, other than the statutory notification
requirements generally applicable to those accounts, even though interest may be lost because of
the withdrawal or transfer.
41
Pursuant to the Georgia Supreme Court rules, the Georgia Bar Foundation administers the
IOLTA program.
42
On any IOLTA Account, the rate of interest payable may not be less than
The highest interest rate or dividend generally available from the approved institution to its
non-IOLTA customers for each IOLTA account that meets the same minimum balance or
other eligibility qualifications, if any. In determining the highest interest rate or dividend
generally available from the institution to its non-IOLTA customers, the institution may
consider factors, in addition to the IOLTA Account balance, customarily considered by the
institution when setting interest rates or dividends for its customers if such factors do not
discriminate between IOLTA Accounts and accounts of non-IOLTA customers; or
Alternatively, an institution may choose a rate equal to the greater of: 0.65% per annum or a
benchmark interest rate, net of allowable reasonable fees, set by the Foundation, which shall
be expressed as a percentage (index) of the federal funds target rate, as established from time
to time by the Federal Reserve Board. In order to maintain an overall comparable rate, the
Foundation will periodically, but not less than annually, publish its index. The index shall
initially be 65% of the federal funds target rate.
Approved institutions may choose to pay rates higher than comparable rates discussed
above.
43
Current Market Interest Rates
As of January 16, 2023, the Wall Street Journal prime rate (indexed rate) was 8.5 percent. To
determine this rate, the Wall Street Journal surveys the 30 largest banks, and when three-quarters
of them (23) change, the WSJ changes its rate, effective on the day the Journal publishes the new
rate. It's the most widely quoted measure of the prime rate, which is the rate at which banks will
lend money to their most-favored customers.
44
The prime rate will move up or down in lock step
with changes by the Federal Reserve Board.
45
The prime rate is an important index used by
banks to set rates on many consumer loan products, such as credit cards or auto loans.
As of January 17, 2024, the Federal funds rate was 5.33 percent.
46
The Federal Reserve
implements monetary policy primarily by influencing the federal funds rate, which is the interest
rate that financial institutions charge each other for loans in the overnight market for reserves.
47
41
Id.
42
Rule 15-103, prescribes the rate of interest paid. ORDER-2014_1_FINAL_with-State-Bar-Edits1.pdf (gasupreme.us) (last
visited Jan. 18, 2024).
43
Id.
44
Wall Street Prime Rate | WSJ Current Prime Rate Index (bankrate.com) (last visited Jan. 19, 2024).
45
Id.
46
Federal Reserve Board - H.15 - Selected Interest Rates (Daily) - January 18, 2024 (last visited Jan. 19, 2024).
47
Federal Reserve Bank of San Francisco, What is the Fed: Monetary Policy https://www.frbsf.org/education/teacher-
resources/what-is-the-fed/monetary-policy. (2024) (last visited Jan.18, 2024). BILL: SB 1336 Page 7
The daily effective federal funds rate is volume-weighted median of transaction-level data
collected from depository institutions in the Report of Selected Money Market Rates.
48
III. Effect of Proposed Changes:
Section 1. Creates s. 655.97, F.S., relating to interest on trust accounts. The Chief Financial
Officer (CFO) is required to set the rates, net of fees and service charges quarterly (December 1,
March 1, June 1, and September 1) to be effective for January 1, April 1, July 1, and October 1,
respectively. In establishing this rate, the CFO must use the highest of 68 percent of the upper
bound of the federal funds rate or 25 basis points (0.25 percent). This rate is known as the
compliance rate. The annual percentage yield of the established compliance rate may not exceed
255 basis points (2.55 percent).
In lieu of paying the established compliance rate, a financial institution may pay an annual
percentage yield that is higher of: the highest interest rate or dividend generally available from
the institution to its non-IOTA accounts, consumer accounts, or its non-maturing deposit
accounts, or 25 basis points (0.25 percent), when IOTA accounts meet or exceed the same
minimum balance or other eligibility requirements.
Once the compliance rate is set by the CFO, the CFO must notify Funding Florida Legal Aid of
this rate. This rate does not apply to or effect an interest rate established by written contract or
obligation not affecting IOTA accounts. If a financial institution selects the alternative interest
rate described above, the institution must submit to Funding Florida Legal Aid the IOTA Rate
Comparability Information form promulgated by The Florida Bar.
Section 2. The act takes effect July 1, 2024.
IV. Constitutional Issues:
A. Municipality/County Mandates Restrictions:
None.
B. Public Records/Open Meetings Issues:
None.
C. Trust Funds Restrictions:
None.
D. State Tax or Fee Increases:
None.
48
Id. BILL: SB 1336 Page 8
E. Other Constitutional Issues:
Currently, rules relating to the regulation of attorneys, including the interest on trust
accounts (IOTA), are governed by rules adopted by the Florida Supreme Court. In re
Interest on Trust Accounts,
49
the Supreme Court found that the creation of the IOTA
program was within the Court's constitutional authority to regulate the practice of law.
50
Separation of Powers
The Florida Constitution mandates separation of powers between branches of the Florida
government. Article II, section 3 of the Florida Constitution provides:
“The powers of the state government shall be divided into legislative, executive
and judicial branches. No person belonging to one branch shall exercise any
powers appertaining to either of the other branches unless expressly provided
herein.”
The separation of powers doctrine encompasses two fundamental prohibitions. The first
is that no branch may encroach upon the powers of another. The second is that no branch
may delegate to another branch its constitutionally assigned power.
51
As a coequal branch
of government, the judicial branch “is not an ‘agency’ subject to the supervision or
control by another coequal branch of government.”
52
Federal Preemption
The bill creates s. 655.97, F.S., within the Financial Institutions Code (code).
53
The code
generally applies to the regulation of state-chartered financial institutions by the Office
Financial Regulation. The provisions of the bill require the Chief Financial Officer to
establish rates of interest on trust accounts (IOTA) established by lawyers at participating
or eligible institutions. Chapter 17, F.S, prescribes the duties of the Chief Financial
Officer.
The National Banking Act was enacted by Congress to facilitate a national banking
system.
54
The Office of the Comptroller of the Currency is the federal agency charged
with regulating national banks and savings associations.
55
It is unclear whether the
regulation of rates of interest on trust accounts within the code would be applicable to
national banks and savings associations.
49
Supra at 1.
50
356 So. 2d 799 (Fla. 1978).
51
Chiles v. Children A, B, C, D, E, & F, 589 So.2d 260, 264 (Fla.1991).
52
Times Pub. Co. v. Ake, 645 So. 2d 1003, 1004 (Fla. 2d DCA 1994), 660 So. 2d 255 (Fla. 1995).
53
Chs. 655, 657, 658, 660,662,663, 665, and 667, F.S.
54
Marquette Nat’l Bank of Minneapolis v. First of Omaha Serv. Corp., 439 U.S. 299 (1978).
55
12 USC s. 1 et seq. BILL: SB 1336 Page 9
V. Fiscal Impact Statement:
A. Tax/Fee Issues:
None.
B. Private Sector Impact:
None.
C. Government Sector Impact:
None.
VI. Technical Deficiencies:
Line 27 of the bill refers to “eligible institutions;” however, the term is not defined in the bill.
The creation of a definition or a reference to the term as defined in the Rules Regulating The
Florida Bar would provide clarity.
VII. Related Issues:
None.
VIII. Statutes Affected:
This bill creates section 655.97 of the Florida Statutes.
IX. Additional Information:
A. Committee Substitute – Statement of Changes:
(Summarizing differences between the Committee Substitute and the prior version of the bill.)
None.
B. Amendments:
None.
This Senate Bill Analysis does not reflect the intent or official position of the bill’s introducer or the Florida Senate.