Ethics Opinion Articles - NC State Bar Journal

Bank Matters

By Alice Neece Mine

Rule 1.15 of the North Carolina Rules of Professional Conduct, and its subparts, contains many provisions about the duty to deposit client funds in a trust account to protect and secure the funds. For example, Rule 1.15-2(b) admonishes: “All trust funds received by or placed under the control of a lawyer shall be promptly deposited in either a general trust account or a dedicated trust account of the lawyer.” The rule does not say where a lawyer should establish a trust account except that it must “be maintained at a bank in North Carolina” unless there is written consent of the client to deposit the funds in an institution outside of the state. Rule 1.15-1(e). “Bank” is tersely defined as “a bank, savings and loan association, or credit union chartered under North Carolina or federal law.” There is no list of approved or recommended banks from which a lawyer must choose. The choice of a depository bank for your trust account is entirely up to you. What many lawyers do not realize is that the decision to establish a trust account at a particular bank may make a difference in whether the lawyer is in compliance with the Rules of Professional Conduct.

Every lawyer with a trust account must insure that the depository bank does the following things:

· Reports to the North Carolina State Bar when an instrument drawn on the trust account is presented for payment against insufficient funds. See Rule 1.15-2(k). A lawyer may not maintain a trust or fiduciary account at a bank that does not agree to make the reports. The State Bar can provide you with a form directing your bank to report overdrafts to the State Bar. [Notice form available at www.ncstatebar.org]

· Provide the lawyer with all canceled checks or other instruments drawn on the trust account or printed digital images of the checks. The digital images must be legible reproductions of the front and back of the original instrument with no more than six instruments per page and no images smaller than 1 3/16 x 3 inches. Rule 1.15-3(a)(2).

· If the bank provides only digital images of canceled checks and instruments, it must maintain the capacity to reproduce additional or enlarged images of the original instruments upon request for a period of six years. Rule 1.15-3(a)(2).

If your bank is not doing these things, you are professionally responsible—not the bank.

What Bruno Sees

Bruno DeMolli, the staff auditor who performs random audits of trust accounts, reports that compliance with the requirements varies substantially from bank to bank and from branch office to branch office. Some banks regularly fail to notify the State Bar when a trust account check is presented against insufficient funds. This occurs despite the fact the lawyer properly filed a directive with the bank, pursuant to Rule 1.15-2(k), instructing the bank to notify the State Bar. Many of the branch offices of one large statewide bank notify the State Bar only when a trust account check is presented against insufficient funds drawn on an IOLTA account. The reporting requirement applies regardless of whether the lawyer participates in the IOLTA program.

Another problem that Bruno sees regularly is non-compliance with the record-keeping requirements relative to digital images of cancelled trust account checks. Many banks do not provide the back image of the check or the images are smaller than permitted by Rule 1.15-3(a)(2). Some banks keep digital records for a much shorter period than the six years mandated by Rule 1.15-3(a)(2). Non-compliance with these requirements substantially impairs the enforcement efforts of the State Bar.

How Do You Fulfill Your Professional Responsibility to Choose the Right Bank?

Since you are responsible for the bank’s compliance with the notice and record-keeping requirements, the only way for you to act in a professionally responsible manner is to investigate the banks in your community to find out which banks understand the requirements and are willing to comply. If the bank maintains only digital images of cancelled checks, you must ensure that the size and front/back requirements are being met and that the bank maintains the ability to reproduce the records for a period of at least six years. Once you chose a bank, monitor the bank’s compliance and, if the bank changes its procedures, insist upon compliance or move your trust account at a bank that will comply. If a local branch manager does not understand the requirements, encourage the manager to contact the home office for instructions or call the State Bar. The lawyers in the ethics department and Mr. DeMolli would be glad to explain the requirements.

While You’re At It, Help IOLTA

Supporting improvements in the administration of justice is another way to act in a professionally responsible manner. While you are investigating banks, consider depositing your clients’ funds in an IOLTA bank that has policies that increase the earnings for IOLTA. The higher the interest paid on the IOLTA account and the lower the service charges, the more income for IOLTA. A trust account at a bank that has favorable policies can be very beneficial to the IOLTA program, while accounts at a bank with less favorable policies can actually cost the program money. For more information about a bank’s IOLTA account policies, contact the IOLTA office at 919-828-0477.

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