NY: Increasing Funds for Legal Services for the Poor


New York Governor Elliott Spitzer announced new regulations that will increase fourfold state spending on civil legal services, critical help in protecting the working poor's legal rights regarding housing, protection from domestic abuse, child support and essential heath care.

Under Spitzer's proposal, the additional funds would come from banks required to pay a higher interest rate on funds deposited in special accounts that lawyers use to temporarily hold money deposited by clients. The New York State Interest on Lawyer Account Fund (IOLA), pools together this interest income, which is forwarded to the IOLA Fund and granted to legal services programs.  All 50 states have similar programs to provide funds for legal services.

Currently, banks in New York pay an average interest of 0.5 percent on the funds, far less than they pay to comparable accounts with savings for other purposes.  Under Spitzer's proposal, banks would be required to pay a more competitive rate of around 2.7 percent-- increasing funding for legal services from $13 million currently to as much as $65 million.  Spitzer's proposal has wide support, including Chase bank, which will voluntarily implemented the regulations even before the effective date.

Florida --the first state back in 1981 to use interest on lawyer accounts to fund legal services -- was also the first state in 2004 to require banks to offer competitive interest rates on those accounts.  The resulting revenue from those accounts rose from $22.7 million in fiscal year 2004-05 up to $67.3 million by the following year.  While many caution that even these increases leave many legal needs of the poor unmet, these new banking rules on IOLA accounts are a step in the right direction.



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