Compliance Bulletin

Revised FDIC Rule On IOLTA Accounts
January 25, 2011

Last November the FDIC issued a final rule implementing Section 343 of the Dodd-Frank Act (“Act”), which made the core of the Transaction Account Guarantee Program (TAG Program) non-optional beginning December 31, 2010 and ending December 31, 2012. 

Beginning on December 31, 2010, all noninterest-bearing transaction accounts in all FDIC-insured depository financial institutions will have unlimited FDIC coverage. In contrast to the definition of noninterest-bearing transaction account in the TAG Program, the Section 343 definition did not include NOW accounts or IOLTAs. Therefore, neither NOW accounts nor IOLTAs were within the November rule’s definition of noninterest-bearing transaction account. (See CBA’s Regulatory Compliance Bulletin, Summary of Final Rule on Unlimited Insurance Coverage For Noninterest-Bearing Transaction Accounts, dated November 22, 2010).

On December 29, 2010, the President signed into law an act that amended the definition of noninterest-bearing transaction account in Section 11(a)(1)(B)(iii) of the Federal Deposit Insurance Act to include IOLTAs. That act made no changes with respect to NOW accounts. This prompted the FDIC now to issue an additional rule to account for the change [1]. In its November rule, the FDIC required banks that had been participating in the TAG Program as of December 31, 2010 to provide individual notices to depositors with NOW accounts and IOLTAs of the termination in coverage. Those notices had to be delivered to depositors no later than December 31, 2010. In addition, banks are also required to post a notice in the lobby of their main office, branches and, if internet deposit services are offered, on their website indicating, among other things, that the term noninterest-bearing transaction account does not include IOLTAs.

This final rule amends the prescribed notice, which must be posted no later than February 28, 2011 [2]. It also eliminates the requirement that banks participating in the TAG Program notify IOLTA depositors that, beginning January 1, 2011, IOLTAs will no longer be eligible for unlimited protection. In its Financial Institutions Letter issued on January 21, 2011 (FIL-2-2011) the FDIC notes that banks that had already sent the notice of non-coverage to IOLTA depositors are “encouraged, but not required,” to send a revised notice that their funds will be fully insured from December 31, 2010 through December 31, 2012.

In that FIL, the FDIC also amended its instructions, effective December 31, 2010, pertaining to insured depository institutions’ reporting of the amount and number of noninterest-bearing transaction accounts of more than $250,000 in their Call Reports and Thrift Financial Reports, as follows:

  • For Call Report Schedule RC-O, Memorandum items 5.a and 5.b; TFR Schedule DI, Line Items DI580 and DI585; and FFIEC 002 Schedule O, Memorandum items 5.a and 5.b, IDIs should treat IOLTAs as noninterest-bearing transaction accounts. Thus, IDIs should include those IOLTAs with balances of more than $250,000 in the total amount and number of Dodd-Frank Act noninterest-bearing transaction accounts of more than $250,000 that they report in these data items.
  • For Call Report Schedule RC-O, Memorandum item 2; TFR Schedule DI, Line Item DI210; and FFIEC 002 Schedule O, Memorandum item 2, IDIs should treat all noninterest-bearing transaction accounts, including all IOLTAs, as insured deposits and therefore exclude the balances of these accounts from the estimate of uninsured deposits that they report in this data item. This data item is required to be completed by banks and savings associations with $1 billion or more in total assets and by insured branches with $1 billion or more in total claims on nonrelated parties.

The FDIC also notes that revised instructions that reflect the amended definition will be included in updated regulatory reporting instructions that will be issued by the Federal Financial Institutions Examination Council and its member agencies for the March 31, 2011, report date.

The FDIC’s regulation at 12 CFR § 330.1(r) is revised as follows:

Noninterest-bearing transaction account means—

(1) A deposit or account maintained at an insured depository institution—
(i) With respect to which interest is neither accrued nor paid;
(ii) On which the depositor or account holder is permitted to make withdrawals by negotiable or transferable instrument, payment orders of withdrawal, telephone or other electronic media transfers, or other similar items for the purpose of making payments or transfers to third parties or others; and
(iii) On which the insured depository institution does not reserve the right to require advance notice of an intended withdrawal; and
(2) A trust account established by an attorney or law firm on behalf of a client, commonly known as an Interest on Lawyers Trust Account, or a functionally equivalent
account, as determined by the Corporation. [Emphasis added]

Here is the text of the revised notice:

All funds in a “noninterest-bearing transaction account” are insured in full by the Federal Deposit Insurance Corporation from December 31, 2010, through December 31, 2012. This temporary unlimited coverage is in addition to, and separate from, the coverage of at least $250,000 available to depositors under the FDIC’s general deposit insurance rules. The term “noninterest-bearing transaction account” includes a traditional checking account or demand deposit account on which the insured depository institution pays no interest. It also includes Interest on Lawyers Trust Accounts (“IOLTAs”). It does not include other accounts, such as traditional checking or demand deposit accounts that may earn interest, NOW accounts, and money-market deposit accounts. For more information about temporary FDIC insurance coverage of transaction accounts, visit

The information contained in this CBA Regulatory Compliance Bulletin is not intended to constitute, and should not be received as, legal advice. Please consult with your counsel for more detailed information applicable to your institution.

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