Can a New York lawyer accept a bank 'earnings credit' that reduces the lawyer's bank fees based on balances held in the lawyer's IOLA account?
NY State Bar Ethics Opinion 764: IOLA earnings credit and client consent
Short answer: A lawyer may accept a bank earnings credit that reduces the lawyer's monthly bank charges based on balances held in the lawyer's IOLA account only with the client's consent after full disclosure, because the credit is something of value from someone other than the client related to the representation.
Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the New York State Bar Association's rules of professional conduct and are persuasive authority. This summary is for research purposes only and is not legal advice. Verify current rules before acting on any specific guidance.
About this page: The plain-English summary and Q&A below were written by Ezel based on the official opinion. We do not reproduce the opinion text on this page; follow the linked source for the official text, which controls.
Plain-English summary
A bank planned to offer attorneys an "earnings credit" tied to balances in the attorney's accounts, including the IOLA account, that would reduce or eliminate the lawyer's monthly bank fees. Because New York's IOLA statute (Judiciary Law section 497) gives a lawyer broad discretion to decide whether small or short-held client funds go into a pooled IOLA account (where interest funds legal services for the poor) or into a client-benefiting trust account, the inquirer asked whether accepting the credit was ethical.
The committee first cleared away two rules. The credit is not a client-generated "fee," so the bar on excessive fees in DR 2-106(A) did not apply. And it is neither client "funds" nor "property," so the anti-misappropriation rule in DR 9-102(A) did not apply. The committee also declined to decide whether the deposit choice is "professional judgment" under DR 5-101(A) or could "prejudice" the client under DR 7-101(A)(3).
The committee found the question governed by DR 5-107(A)(2) and EC 2-21, which bar a lawyer from accepting anything of value related to the representation from someone other than the client without client consent after full disclosure. Because the trust funds reach the lawyer only through the representation, and the credit reduces charges the lawyer would otherwise pay, the credit is value from a third party related to the representation. The committee noted the credit (potentially $500 or more a year on a large IOLA balance) could influence where the lawyer deposits client funds, to the client's disadvantage, but did not present so great a danger as to require a per se ban. The committee therefore concluded the lawyer may accept it with client consent after full disclosure, consistent with prior opinions requiring disclosure and consent before a lawyer keeps title-company discounts, adjuster commissions, or mortgage-broker referral fees (N.Y. State 320, 461, 576, 667).
In practice
Under the Code as it stood in 2003, the opinion concluded that a lawyer could accept the IOLA earnings credit, but only after disclosing the arrangement to the client and obtaining consent, because the credit is third-party value related to the representation under DR 5-107(A)(2). The opinion held that the analysis turns on that third-party-value rule rather than on the excessive-fee or misappropriation rules, which it found inapplicable.
The opinion did not require a per se prohibition and did not direct that the credit be remitted to the client; it framed the requirement as disclosure and consent before the lawyer accepts the credit.
Common questions
Q: Can a New York lawyer keep a bank credit that lowers the lawyer's fees based on IOLA balances?
A: Yes, but only with the client's consent after full disclosure. The opinion concludes the credit is value from a third party related to the representation under DR 5-107(A)(2).
Q: Is the earnings credit an illegal or excessive fee?
A: No. The opinion holds the credit is not a client-generated "fee," so DR 2-106(A) does not apply; the governing rule is the third-party-value rule, DR 5-107(A)(2).
Q: Does accepting the credit misappropriate client funds?
A: No. The opinion concludes the credit is neither client "funds" nor "property," so the anti-misappropriation rule DR 9-102(A) does not reach it.
Background and rules framework
The opinion interprets New York's former Code of Professional Responsibility, principally DR 5-107(A)(2) (accepting value from one other than the client) and EC 2-21, with DR 9-102(A) (safekeeping client property) and DR 2-106(A) (fees) discussed and found inapplicable. The Model Rules analogues are Rule 1.8(f) (compensation from a third party only with informed consent), Rule 1.15 (safekeeping property), and Rule 1.5 (fees). New York replaced this Code with the Rules of Professional Conduct in 2009; the DR numbers cited here are historical.
Citations and references
Rules of Professional Conduct:
- MR 1.8(f) (accepting compensation from one other than the client)
- MR 1.15 (safekeeping property; trust accounts)
- MR 1.5 (fees)
- NY DR 5-107(A)(2), DR 9-102(A), DR 2-106(A), DR 5-101(A); EC 2-21
Statutes:
- N.Y. Judiciary Law section 497 (IOLA accounts; qualified funds; good-faith protection)
Other opinions cited:
- N.Y. State 320 (1973), 461 (1977), 576 (1986), 667 (1994): disclosure and consent before a lawyer accepts third-party value tied to the representation
- N.Y. State 532 (1981): per se bar on retaining interest where lawyer also serves as escrow agent
See also
- NY State Bar Op. 758: Electronic retention of trust account records
- NY State Bar Op. 759: Using an ATM to deposit into a trust account
- NY State Bar Op. 1000: Fees paid by a third party with adverse interests
Source
- Landing page: https://nysba.org/ethics-opinion-764/